Fed Move Won’t Change Things Much

The Federal Reserve’s latest effort to boost the economy by driving down long-term interest rates won’t have a big impact on home and car buyers, savers or credit card users.

Any noticeable changes from the central bank shuffling $400 billion of its portfolio are likely to be mixed. Although borrowers may benefit from lower rates on mortgages and other fixed-rate loans, savers holding long-term bonds are likely to see their interest income dip.

Mortgage rates are a focus of the new plan. The Fed intends to sell $400 billion of its shorter-term Treasurys to buy longer-term Treasurys by June 2012. And it will reinvest principal payments from its mortgage-backed securities to help keep mortgage rates ultralow.

These steps alone won’t spur a housing boom. Interest rates already are at the lowest level in six decades, averaging 4.09 percent on a 30-year fixed mortgage and 3.29 percent on a 15-year fixed.

Prospective homebuyers aren’t putting off home purchases because rates are too high. They’re holding off because they’re lacking confidence. They’re worried about a recession or job loss and are unwilling to take on more debt, even at lower rates, or aren’t able to qualify. Others see no reason to jump into the housing market when prices are still falling.

Still, the Fed hopes to at least stimulate more refinancing activity as a way to get the economy moving. “This may make it even more affordable for those few who can afford to buy,” says Diane Swonk, chief economist at Mesirow Financial Inc., a Chicago-based financial services firm. But it only helps a select group, she says, leaving most would-be homebuyers still unable to take advantage.

From the consumer standpoint, borrowers will benefit only from better rates on longer-term loans: fixed-rate mortgages, fixed-rate home equity loans and, for entrepreneurs, fixed-rate small business loans.