Bank credit card rates will begin to trickle upward next month in the wake of the Federal Open Market Committee (FOMA) decision to raise short-term rates by 25 basis points (bps). It is likely credit card rates in the first quarter will return to 2010 levels.
The Conference Board Leading Economic Index (LEI) for the Euro Area decreased 0.2% in May to 108.8 (2004 = 100), following a 0.2% increase in April and a 0.5% decline in March. The Conference Board Coincident Economic Index (CEI) for the Euro Area, which measures current economic activity, declined 0.1%t in May and now stands at 103.0 (2004 = 100), up 0.3% in April, following a 0.2% decline in March. The eight components of the Euro Area Conference Board Leading Economic Index include Economic Sentiment Index; Index of Residential Building Permits Granted; Index of Capital Goods New Orders; the EURO STOXX Index; Money Supply; Interest Rate Spread; Eurozone Manufacturing Purchasing Managers’ Index; and the Eurozone Service Sector Future Business Activity Expectations Index.
The April “Senior Loan Officer Opinion Survey on Bank Lending Practices” has found that 10% of banks, on net, indicated that they had eased standards on credit cards and non-credit-card consumer loans over the past three months. Those institutions that had eased their lending standards and terms over the past three months cited more-aggressive competition from other banks or non-bank lenders and half of those respondents cited a more-favorable or less-uncertain economic outlook as a reason for their move toward less-stringent lending.
The FOMC decided Tuesday to raise its target for the federal funds rate to 3% and the Board of Governors approved a new discount rate of 4%. Banks immediately raised their prime rate to 6%. The average credit card interest rate paid by U.S. consumers is currently 16.75%, compared to 15.62% one-year ago. Offered rates continue to hover around 14.00%, according to CardTrak ([www.cardtrak.com]). Platinum cards, which represent 60% of the U.S. market, carry the lowest interest rates. During April, the average rate paid for a Platinum card was 15.97% compared to 14.78% one-year ago. Gold cards, which are largely marketed to lower income consumers and represent 10% of the market, carry an average rate of 18.21% compared to 17.10% one-year ago. Standard cards, which make up 30% of the U.S. market, carry an average rate of 17.82%, compared to 16.82% one-year ago.
Credit Card Interest Rate Historical
Apr 04 4.00% 15.62%
May 04 4.00% 15.67%
Jun 04 4.00% 15.74%
Jul 04 4.25% 15.84%
Aug 04 4.50% 15.91%
Sep 04 4.75% 15.93%
Oct 04 4.75% 16.01%
Nov 04 5.00% 16.18%
Dec 04 5.25% 16.23%
Jan 05 5.25% 16.31%
Feb 05 5.50% 16.41%
Mar 05 5.75% 16.57%
Apr 05 5.75% 16.75%
Source: CardData (www.carddata.com)
The Federal Open Market Committee decided Wednesday to raise its target for the federal funds rate by 25 basis points to 2.25% and the Board of Governors unanimously approved a 25 bps increase in the discount rate to 3.5%. The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. The Committee perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters to be roughly equal.
The Federal Open Market Committee raised its target for the federal funds rate by 25 basis points to 2.25% yesterday. The FOMC says output appears to be growing at a moderate pace despite the earlier rise in energy prices, and labor market conditions continue to improve gradually. This is the fifth rate increase since the summer. Banks began raising the prime rate to 5.25% late yesterday. Of the $662 billion currently owed on bank credit cards, approximately $600 billion accrues interest. Of the $600 billion in revolving balances, about 55% is subject to variable interest rates. Therefore, $330 billion in credit card balances are directly affected by the rate hike.
The Federal Open Market Committee decided yesterday not to change the federal funds rate, and indicated it may not change rates rate for a “considerable period,” citing deflation as a major concern. The evidence accumulated over the intermeeting period shows that spending is firming, although labor market indicators are mixed. Business pricing power and increases in core consumer prices remain muted. The Committee perceives that the upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal. In contrast, the probability, though minor, of an unwelcome fall in inflation exceeds that of a rise in inflation from its already low level.
Several banks this morning announced a cut in the prime lending rate to 4.0% from 4.25%, effective today. The rate cut will affect most variable rate credit cards since it comes before the close of the month and quarter. However, cards with floor or minimum rates will be unaffected. Less than 50% of bank credit cards in-force in the USA have variable interest rates compared to 80% five years ago. The Federal Open Market Committee decided this week to lower its target for the federal funds rate by 25 basis points to 1 percent. The Board of Governors also approved a 25 basis point reduction in the discount rate to 2 percent. The rate cut took interest rates to their lowest level in more than 40 years.
A survey of 59 U.S. banks has found that 15% have tighten standards on credit cards over the past three months. The “January 2003 Senior Loan Officer Opinion Survey on Bank Lending Practices” found that financial institutions continue to tighten lending standards and terms for commercial and industrial loans. There is also evidence that some banks are beginning to tighten standards on home mortgages. The share of banks tightening standards on residential mortgage loans edged up to 11% in January from 10% percent in the October survey. Notably, these were the first two indications of any noticeable tightening in over a decade. The net fraction of respondents that reported stronger demand for mortgages to purchase homes over the past three months dropped to 7% in January from 40% in the previous survey. Moreover, the share of banks reporting substantially stronger demand fell from 14% in October to 2% in the current survey.
The Federal Open Market Committee decided today to keep its target for the federal funds rate unchanged at 1.25% citing oil prices and a possible war as factors causing restraint on spending and hiring by businesses. The Committee believes that as those risks lift, as most analysts expect, the accommodative stance of monetary policy, coupled with ongoing growth in productivity, will provide support to an improving economic climate over time.
A blue ribbon panel of banking economists predicted yesterday that national economic growth will pick up from the less than one percent annual rate last quarter to 3.5% in the second half of the year. The American Bankers Association Economic Advisory Committee also projected that inflation will remain tame at under 2.5% this year. The economists predicted that mortgage rates will rise to 6.75% by year end, partly in response to the Fed’s less accommodative policy. As a result, the EAC sees mortgage refinancing ebbing from its record pace. Although credit quality has deteriorated over the past year, the EAC expects an improvement in business credit quality in 2003.
The 50 bps rate cut by the Feds yesterday sent a jolt through the financial markets including the payment card industry. Transaction volumes have been declining for the past four months, and it appears the economy has a long ways to go for recovery from the 2001 recession. The Federal Open Market Committee decided today to lower its target for the federal funds rate by 50 basis points to 1.25%. The Board of Governors also approved a 50 bps reduction in the discount rate to 0.75%. The FOMC says incoming economic data have tended to confirm that greater uncertainty, in part attributable to heightened geopolitical risks, is currently inhibiting spending, production, and employment. The prime rate fell to 4.25% overnight the lowest level in more than 40 years. The impact on credit cards will be minimal given the prevalence of fixed interest rates and the previous triggering of floor interest rates.