Interest rates on new credit card offers remained at 14.95
percent for the ninth straight week, according to the
CreditCards.com Weekly Credit Card Rate Report.
This is the second-longest period on record that average
interest rates have remained the same since CreditCards.com began
tracking credit card interest rates in mid-2007.
In the past 23 weeks, the national average annual percentage
rate (APR) hasn't moved by more than a hundredth of a percentage
point, making this the most stable period for credit card interest
rates since before the financial crisis.
One credit card issuer did make significant changes to the
promotional offer on one of its rewards credit cards. PNC Bank
extended the interest-free period on the PNC Points Visa from six
months to 12 months. The issuer also shortened the card's
promotional 0 percent balance transfer offer from 15 months to 12
Unsteady job market affects rates
Average credit card interest rates are now 3 percentage points
higher than they were in December 2008 when the US was in the
depths of a severe financial crisis that reshaped consumer
Despite the higher national average, today's consumers are still
paying less to carry a credit card balance than they would be
otherwise, thanks to an unprecedented Federal Reserve policy that
began during the crisis.
The Federal Reserve responded to the grim economic environment
in late 2008 by pushing the federal funds rate target -- which
helps set other interest rates, including those on credit cards --
to near zero in order to encourage banks to lend at lower rates and
consumers and businesses to borrow.
The Fed hasn't moved the federal funds rate target since, with
no direction to go but up, and insufficient reason to do so. As a
result, today's cardholders are paying less to carry a balance than
they would be otherwise because the majority of credit cards are
tied to the US prime rate, which is 3 percentage points higher than
the federal funds rate.
When the Federal Reserve does raise the federal funds rate
target -- which it hasn't done since June 2006 -- interest rates on
variable rate cards will move up as well, in tandem with the prime
As long as prices on goods and services don't rise by more than
expected, the Federal Reserve has pledged to leave the federal
funds rate alone until the unemployment rate falls to 6.5 percent.
(It's currently stuck at 7.6 percent.)
In a speech given earlier this month to the
Society of American
Business Editors and Writers
(SABEW), Janet Yellen, vice chair of the Fed's Federal Open Market
Committee (FOMC), spoke about the Fed's decision to keep rates low
for such an extended period -- and about its recent decision to tie
the federal funds rate to unemployment.
"The situation in 2008 and 2009 was like nothing the Federal
Reserve had faced since the 1930s," said Yellen in the
. The crisis prompted the Fed to slash the federal funds rate
target about as far as it could go and communicate to the public a
vague calendar date for when it would raise rates again in the
However, as the slow recovery dragged on, the Fed continued to
move forward the expected date for when interest rates would rise.
Finally, in December 2012, the Fed decided to publicly tie its
interest rates policy to a goal the public could easily understand
and anticipate as economic conditions changed in real-time, said
Once the unemployment rate falls to a level that the Fed
believes is less exceptional than today's historically high rate,
the Fed will raise rates, she said. (The Fed may also change course
and raise interest rates sooner than it planned if prices rise by
more than the Fed is prepared to handle, said Yellen.)
That, in turn, will affect a wide range of variable-rate
consumer loans, including mortgages, auto loans and credit
When rates will go up specifically is unclear, thanks to the
economy's notoriously unstable job market. It's also a matter of
significant debate, including amongst members of the Fed's
rate-setting Federal Open Market Committee.
Rates: How low, how long?
In her speech at the SABEW conference, Janet Yellen said that much
depends on whether the economy improves faster than expected, or if
it backslides in the near future.
However, reading the tea leaves on where the unemployment rate
is headed is exceptionally difficult these days, even for the Fed,
thanks to a job market that keeps bucking expectations.
From December 2012 to February 2013, the economy added a
combined 635,000 jobs -- an average of more than 200,000 jobs per
month. The positive jobs reports fueled speculation that the
economy may be improving more rapidly than expected and that rates
could be poised to rise in the relatively near future.
However, earlier this month, the
reported that the economy added just 88,000 jobs in March. The
disappointing figures led many experts to speculate that 2013 may
end up looking a lot like it did during the past three years of
weak economic growth. Since 2010, the economy has improved
significantly early in the year, then soured in the spring.
Since the March jobs report's release, a number of Fed officials
have weighed in on what it will take to prompt the Fed to change
course and raise interest rates.
Eric Rosengren, president of the Federal Reserve Bank of Boston,
for example, told the
New York Times
that the economy would have to be adding 200,000 jobs per month
before he'd be willing to take a step back from the Fed's
aggressive approach toward monetary policy, according to a
transcript published April 15.
However, Charles I. Plosser, president of the Federal Reserve
Bank of Philadelphia who, unlike Yellen and Rosengren, is not a
voting member of the FOMC, said in a
on April 16 that the Fed should be selling securities, rather than
buying them, and should return to using the federal funds rate
target as its main tool for influencing the economy.
Because the federal funds rate target is currently near zero,
that could mean actually raising the federal funds rate target
sooner than others are advocating.
The International Monetary Fund also has warned the Federal
Reserve to be careful about how long it keeps rates at record lows,
The bottom-line for credit card holders?
It's still not clear when rates will rise on short-term loans, such
as credit cards. But it's not going to be happening any time
Fed: Card balances rise in February