Bob F., as you noted in discussing your floor-plan financing, much commercial financing is based on market rates such as LIBOR, not on "Prime". Some business is still done based on Prime rates, commercial and consumer, but I'd submit that spreads have moved even though the base, Prime, hasn't. It's not too tough for a good consumer credit to find prime-flat (or lower) loans these days when the same loan 4-5 years ago would have been 1.5% or more above prime. More importantly, mortgage rates are fairly responsive to the market, albeit a little sticky going down. Credit card rates, IMO, are not a good indicator since high balances on high rate cards are likely weaker credits who are subsidizing the high default rates among their fellow weak credits. If you have decent credit and want a car loan or a real second mortgage (as opposed to a bill consolidation loan or 125% loan/value "to jump on the latest hot stock"), you will pay a market rate. The effect the Fed has on these actual borrowing rates is indirect and what the WSJ says is the Prime rate has little to do with anything.
JMO,
Bob
PS: Nancy, "expectations theory" is one possible explanation for the slope of the yield curve. Liquidity preferences (simple risk aversion) is another, but that doesn't seem to be a factor right now. Supply vs. demand for the different maturities ("segmentation") is yet another. With reduced government borrowing needs, has the Treasury changed the mix of maturities, reducing the supply of longer paper? If so, what might motivate them to do so and what are the implications? |
