Fed Chairman Kevin Warsh plans to cut the number of rate-setting votes over the next two years. Some experts say borrowers could wait longer for relief, while Warsh is also curtailing forward guidance.
Fed Chairman Kevin Warsh announced plans to reduce the number of rate-setting votes over the next two years, after the central bank held its benchmark rate steady last week. Some experts say the move could extend the time it takes everyday Americans to see borrowing costs adjust.
Eight meetings, fewer votes
On Oct. 28, the Fed voted to keep the benchmark rate at a target range of 3.75% to 4%, as inflation remained well above the Fed's 2% goal. Warsh said the Fed will keep meeting eight times a year.
Next year, however, one of the eight meetings will not include a rate vote or a post-meeting statement. The number of such "strategy" meetings rises to two the following year, which leaves six opportunities to adjust rates, apart from emergency meetings.
Borrowers may wait longer
James Vrachas, executive director at Post Oak Group, said borrowing rates could remain stubbornly high even if economic conditions begin to improve. Jordan Ricciardi, a senior wealth strategy associate at UBS, said consumers could face longer periods of uncertainty around borrowing costs.
Vrachas also noted that financial institutions can adjust rates whenever market conditions warrant, regardless of the Fed's schedule. In his view, the bigger concern is whether lenders pass along lower costs as quickly as they pass along increases.
Most credit cards carry variable rates tied to the prime rate, and rates are edging higher despite the Fed's hold, according to LendingTree, as issuers protect themselves from risk.
Less signaling from the Fed
Economists say consumers may feel the lack of transparency even more, as Warsh implements measures to curtail forward guidance, the way the Fed signals its future rate moves.
Mark Hamrick, founder of The Hamrick Brief, said that according to his assessment, "Warsh keeps his proverbial cards closer to his chest than his recent predecessors have". Hamrick does not expect market rates to change simply because the Fed votes less often, but he said the public may hear less about how and why the Fed makes its decisions.
Hamrick advised consumers to shop around, particularly for the highest yields on savings accounts and certificates of deposit. Some top-yielding online savings accounts offer 4% or more, according to Bankrate data.
Source: CNBC
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