Tomorrow will mark a turning point in credit card pricing if the Feds decide to bump up short-term interest rates by 25 bps (0.25%) or 50 bps (0.50%). It is likely there will be two rate increases before the fall election followed by three or four monthly increases in the first half of 2005. After holding at 6.00% for twenty months, the prime rate moved from 6.00% to 6.25% in April 1994. In less than one year the Feds raised short-term interest rates by 300 bps in six steps: 25 bps; 50 bps; 50 bps; 25 bps; 75 bps; and 50 bps. If the Feds were to drive rates up by 300 bps over the next year, then penalty APRs would be driven above the 30% level, under current variable rate formulas. Standard purchase interest rates would likely rise more than 200 bps over current levels.
RATE CHANGE DATES
June 30
August 10
September 21
November 10
December 14
February 2
March 22
May 3
Source: Federal Reserve
Tomorrow will mark a turning point in credit card pricing if the Feds decide to bump up short-term interest rates by 25 bps (0.25%) or 50 bps (0.50%). It is likely there will be two rate increases before the fall election followed by three or four monthly increases in the first half of 2005. After holding at 6.00% for twenty months, the prime rate moved from 6.00% to 6.25% in April 1994. In less than one year the Feds raised short-term interest rates by 300 bps in six steps: 25 bps; 50 bps; 50 bps; 25 bps; 75 bps; and 50 bps. If the Feds were to drive rates up by 300 bps over the next year, then penalty APRs would be driven above the 30% level, under current variable rate formulas. Standard purchase interest rates would likely rise more than 200 bps over current levels.