Unchanged Fed Funds Rate Good For Consumers

The Federal Open Market Committee Thursday left its Federal Funds Rate unchanged in the zero to 0.25% range for now, which is a good thing for US consumers – for now.

Higher interest rates could stifle consumer spending on which is a mainstay of the US economy as it leads to more jobs and higher incomes, which leads to more spending.  But if wages and employment are improving at such a sluggish pace as to keep the Fed Funds rate near zero, a higher rate could hit families that rely on debt to make ends meet.

Meat purchasing decisions may be swayed by higher indebtedness, changing the landscape of the various meat industries, perhaps for a long time to come.

The Fed Funds rate is the rate banks charge each other for overnight loans and is the basic rate from which all other interest rates are calculated.  The Federal Reserve uses the rate as a major tool to control inflation or recession in the economy, and a change in the base almost certainly will lead to a change in credit card interest rates.

Just about every US consumer uses a credit card to make nearly every purchase, so a change in credit card interest rates could stifle spending.  Even food purchases nowadays are done with credit cards, and a rise in interest rates almost certainly would lead to adjustments in spending since the actual price of all purchases would go up if monthly bills are not paid on time, and most aren’t.

The US economy appears to be working its way out of the Great Recession, although employment and job quality continue to concern policy makers.

Analysts long have expected the Federal Reserve to raise the base interest rate this year.  For a while, the expected target for raising the rate was the September FOMC meeting, but problems with other world economies are proving to be a drag on the US economy, and a higher interest rate likely would mean less US consumer spending, which would put a lid on inflation.




Part of the issue with the US economy is that while consumer spending has grown, a significant portion of the growth has been through expanding debt.  Debt expanded as some made large purchases, like housing to get ahead of an expected rate hike or because some other durable goods wore out.

Federal Reserve statistics say credit card debt is the third largest source of household indebtedness behind mortgages and student loans.  The average household debt through June of this year stood at $15,706, up 0.48% from May but up 2.65% from June 2014.

Credit card debt, however, appears to be holding about steady after sliding from is January 2009 high and plateauing in mid-2010.  It also appears to be sliding toward certain individuals.  This may be because some unemployed people are living off credit card debt as unemployment benefits run out.  It may also be the result of bad spending habits of these individuals.

Whatever the cause, Federal Reserve data through March 2010, the last date of reliable statistics, show the average US household owed far more than the median.  In addition, the average indebted household owed far more than the average household.  This shows that a small number of households are deeply in debt compared with the rest of the population, a discrepancy that likely did not escape the attention of Federal Reserve directors.




Fed cattle trading was reported in the Central and Southern Plains this week at $135 to mostly $136 per cwt on a live basis, $4 to $6 below last week.  Dressed-basis trades also were reported from $214 to $215, off $3 to $5.

The USDA reported lower boxed beef prices Thursday with its choice cutout down $2.91 per cwt at $230.50 and select off $3.33 at $221.70 with 97 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Wednesday was $201.02 per cwt, off $$2.38 for the day.  This compares with the Sep futures settlement Thursday of $193.20, down $0.92.