The Federal Reserve is prodding Americans to buy more on credit

FILE PHOTO: A sign advertises homes for sale in a new housing development in Dickinson, North Dakota January 21, 2016. REUTERS/Andrew Cullen

By Jason Lange

WASHINGTON (Reuters) – The Federal Reserve’s decisive statement this week that interest rates are unlikely to rise this year sends a signal to U.S. households: keep buying stuff.

The Fed tries to guide the U.S. economy by controlling the interest rate banks charge one another for overnight loans. Moving this rate up lifts other rates in the economy, making it costlier for people to use their credit cards or to buy homes and cars. Higher rates also make companies rethink investments.

A solid majority of Fed policymakers on Wednesday said higher rates are unlikely this year, leading investors to bet the economy might slowing enough for the Fed to actually cut rates.

The following are some possible consequences for American households:

EASY CREDIT

The Fed’s signal on its interest rate outlook led key market rates to fall, including the yield on 10-year Treasury bonds. That is a sign that rates are also falling for loans used to buy houses and cars. Interest rates for credit cards may also drift lower. Mortgage rates have been falling since November when Fed policymakers made clear they would be patient about rate decisions.

SAVING DISCOURAGED

Lower rates also encourage spending by taking the shine off some common ways to save money. Low yields reduce the return on money in savings accounts as well as in funds made up of safe-haven government bonds. This poses a problem for retirees who depend more on their income from savings and who take a hit from lower rates on Treasury bonds. The Fed has argued that retirees benefit from actions taken to support the broader economy.

RETIREMENT BOOST

Rising stock prices comprise the flip side of lower bond yields. That boosts the value of private retirement accounts, such as 401(k)s, particularly those of young people whose accounts tend to be weighted toward stocks.

The benchmark S&P 500 stock index surged after the Fed’s decision, reflecting the view that cheaper borrowing costs would help company profits. It is possible that stock market gains could boost consumer spending because people sometimes loosen their purse strings after a rise in perceived wealth.

BUOYANT LABOR MARKET

The U.S. jobless rate is near its lowest level in 50 years although lately there have been signs of softening in the labor market. Hiring slowed sharply in February and the number of new jobless claims every week has also been ticking higher. The Fed’s action aims to keep the labor market solid. That could help encourage more people to rekindle job searches they had given up when the economy was still weak following the 2007-09 financial crisis.

 

(Reporting by Jason Lange, editing by G Crosse)

Your Money: What another U.S. interest rate rise means for you

A woman shows U.S. dollar bills at her home in Buenos Aires, Argentina August 28, 2018. REUTERS/Marcos Brindicci

By Beth Pinsker

NEW YORK (Reuters) – If you have credit card debt, take the next U.S. Federal Reserve move to raise interest rates as a big, flashing warning sign.

Short-term rates are the most affected when the government nudges up the federal funds rate, which the Fed is expected to do on Wednesday, likely raising it a quarter point. That will be the third move in 2018 and the eighth since the Fed started inching rates up from effectively zero in December 2015. One more hike is expected before the end of the year.

“That means your 15 percent interest rate on a credit card is now a 17 percent rate,” said Greg McBride, chief economist for Bankrate.com. “If you haven’t already, it’s important to take steps to insulate yourself.”

The message to get out of debt is a hard sell to the American households holding nearly a trillion dollars in credit card debt, according to Nerdwallet.com’s 2017 survey.

Many pay only the monthly minimum payments, incurring interest charges that balloon their balances.

It is a “treadmill to nowhere,” McBride said.

On a card with a $10,000 balance, paying the minimum (interest plus 1 percent of the balance) will cost you $12,000 in interest and take 27 years to pay off at a 15 percent rate. Bump that up to a 17 percent interest rate, and you pay $13,600 in interest – plus, it would take an extra year to be out of debt, according to Bankrate.com’s calculator (https://bit.ly/2v4vaMm).

Experts say you should push your credit card debt to a zero-percent balance transfer card. You can still get offers for as long as 21 months, with fees, according to Nick Clements, co-founder of the money advice site MagnifyMoney.com. Then pay down as much money as you can to reduce the debt in that time period.

It is also a good idea to explore the personal loan market, where rates are rising but not as fast because of competition, Clements said. These loans have short repayment periods, typically under five years.

AVOID HOME EQUITY LOANS

If you are in debt and own a home, now is not necessarily the best time to be tempted with a home equity loan to pay off debt, said Tendayi Kapfidze, chief economist of housing site LendingTree.com.

The variable interest rates of a home equity loan are also affected by the Fed raising interest rates, although not as highly correlated.

The biggest risk? Cashing out home equity to pay down debt, but then as soon as you are even, digging another financial hole and not having anything left to tap.

“You need a broader plan to control your spending,” said Kapfidze.

For those looking to buy a house or refinance, the latest Fed move will have a slower impact. Other things influence mortgage rates along with the Fed funds rate, but those factors are heading in the same direction.

Kapfidze does not expect any large mortgage rate moves in the near term, but that, he said, is because there had already been a runup in recent weeks.

Savings rates are the last to move because of Fed actions. Banks raise rates on what they are selling before they raise rates on what they are buying, Kapfidze said.

But if savers turn into shoppers, they will find some better deals in the coming months. Online banks are being particularly aggressive about rates for certificates of deposit, with new players like Goldman Sachs’ Marcus, Clements said.

Investors should look at the yield on their fixed income investments, which might be around 3 percent and compare it to a 12-month CD for 2.5 percent.

“If you think about it, low rates mean people take more risk. As rates are rising, people should be able to take less risk,” Clements said.

(Editing by Lauren Young and Bernadette Baum)

Saks, Lord & Taylor hit by payment card data breach

The Lord & Taylor flagship store building is seen along Fifth Avenue in the Manhattan borough of New York City, U.S., October 24, 2017. REUTERS/Shannon Stapleton

By Jim Finkle and David Henry

TORONTO/NEW YORK (Reuters) – Retailer Hudson’s Bay Co on Sunday disclosed that it was the victim of a security breach that compromised data on payment cards used at Saks and Lord & Taylor stores in North America.

One cyber security firm said that it has evidence that millions of cards may have been compromised, which would make the breach one of the largest involving payment cards over the past year, but added that it was too soon to confirm whether that was the case.

Toronto-based Hudson’s Bay said in a statement that it had “taken steps to contain” the breach but did not say it had succeeded in confirming that its network was secure. It also did not say when the breach had begun or how many payment card numbers were taken.

“Once we have more clarity around the facts, we will notify our customers quickly and will offer those impacted free identity protection services, including credit and web monitoring,” the statement said.

A company spokeswoman declined to elaborate.

The breach comes as Hudson’s Bay struggles to improve its financial performance as a tough retail environment has weighed on sales and margins. Last June, it launched a transformation plan to cut costs and is working to monetize the value of its substantial real estate holdings.

Hudson’s Bay disclosed the incident after New York-based cyber security firm Gemini Advisory reported on its blog that Saks and Lord & Taylor had been hacked by a well-known criminal group known as JokerStash.

JokerStash, which sells stolen data on the criminal underground, on Wednesday said that it planned to release more than 5 million stolen credit cards, according to Gemini Chief Technology Officer Dmitry Chorine.

The hacking group has so far released about 125,000 payment cards, about 75 percent of which appear to have been taken from the Hudson’s Bay units, Chorine told Reuters by telephone.

The bulk of the 5 million card numbers that JokerStash said it plans to release are likely from Saks and Lord & Taylor, but it is too early to say for sure, Chorine said.

“It’s hard to assess at the moment, primarily because hackers have not released the entire cards in one batch,” he told Reuters.

Alex Holden, chief information security officer with cyber security firm Hold Security, confirmed that the 125,000 cards had been released by JokerStash but said it was too soon to estimate how many had been taken from Hudson’s Bay.

If in fact millions of records were stolen, the breach would be one of the largest involving payment cards in the past year, but it would still be far smaller than any of the biggest thefts on record, which occurred a decade ago.

Hackers stole more than 130 million credit cards from credit-card processor Heartland Payment Systems, convenience store operator 7-Eleven Inc and grocer Hannaford Brothers Co, from 2006 to 2008, according to U.S. federal investigators.

Cyber criminals stole some 40 million payment cards in a 2013 hack on Target Corp and 56 million from Home Depot Inc in 2014.

Hudson’s Bay said there is no indication its recent breach involved online sales at Saks and Lord &Taylor outlets or its Hudson’s Bay, Home Outfitters and HBC Europe units.

The company said that customers will not be liable for fraudulent charges resulting from the breach.

(Reporting by Jim Finkle in Toronto and David Henry in New York; Editing by Bill Rigby and Steve Orlofsky)