Can Fed rate cut save Christmas?
While consumers are dreaming of a white Christmas, retailers are thinking black — as in a profitable holiday shopping season. But if a recent item from CNNMoney.com is correct, the second Federal Reserve interest rate cut of 2007 may not be enough to give retailers the sales lift they need this year.
In researching a recent story, experts explained to me that cardholders didn’t have much to gain from a Fed rate cut. The math supports this position. For a consumer with a $5,000 credit card balance and a 17.5% interest rate, a quarter-point interest rate reduction to 17.25% would amount to just over $1 in monthly savings.
Since consumer spending drives two-thirds of the U.S. economy, how many extra dollars Americans have in their wallets is important year-round. But it becomes particularly important as the temperature drops, since November and December generally account for 50 percent or more of retailers’ annual sales.
Interest rates now stand at 4.5%, following a half-point interest rate cut in September and the quarter-point rate cut on Halloween. According to experts that spoke with CNNMoney, the latest rate cut is “too little, too late,” Based on indications that September’s rate cut apparently did little to boost retailers’ results that month, forecasters are predicting that the latest cut will do little to bolster retailers this winter. That could mean trouble for retailers this holiday season.
Will the recent rate cuts mean more cash for you to spend this holiday season? Or is it really too little extra cash to make a difference?