I read a recent Reuter's article, Bernanke offers gloomy view but few new hints on easing. And, thought, "What does Bernanke’s pessimistic view of the economy mean for Barclaycard Ring?"
Twice a year the Federal Reserve, which is the central bank of the United States, is required by law to report their policies to Congress. Ben Bernanke has been the Chairman of the Federal Reserve since 2006. The Fed has two main responsibilities, sometimes referred to as the “dual mandate.” The first is to maximize the country’s employment and the second is to keep inflation in check. Unfortunately, these two goals are somewhat at odds. If we ever reached 100% employment then the wages in the United States would escalate as businesses would have to compete heavily for new employees. Those wage increases would result in price increases as the businesses would look to recoup their costs. Price increases lead to inflation. So while the Fed’s goal is to “maximize” employment they must do so with a balanced approach to watching the inflation rates. While the actual number is debated, an unemployment rate of between 4.5% and 5.5% is considered the appropriate level to keep inflation at sustainable levels.
The Federal Reserve has two tools at their disposal to help guide employment and inflation. They set the Fed Funds Rate and they manage the money supply for the country. These two levers can either speed up or slow down the economy depending on what needs to be done. The Fed Funds rate (currently close to 0%) ties directly to the Prime Rate which is currently at 3.25%. The Prime Rate is a driving factor in Barclaycard Ring’s 8% variable APR. Ben Bernanke said last week that he doesn’t see the rates increasing until late 2014. That means Barclaycard Ring customers should be able to enjoy their low 8% variable APR for at least two more years.
In addition, Barclaycard’s funding costs are also directly tied to the Fed Funds Rate. The funding cost for Barclaycard Ring is something we show in the track section of our community site. We currently estimate our funding costs at Prime Rate minus 1.25% and we periodically review this margin to ensure it’s fair to our customers. Low interest rates over the long term could mean more Giveback™ to Barclaycard Ring cardmembers as well.
While America and the rest of the world continues to struggle through this economy, the funding rates are kept low so that consumers and institutions can borrow at a low cost. This can either help an individual or company get through a tough time or allow someone invest in a new idea more cheaply.
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Is Barclaycard Ring right for you?
Barclaycard Ring is based on a few core principles: we believe customers deserve a simple credit card that's also a great deal. We believe that as a bank, we need our customers' ongoing feedback to make Barclaycard Ring even better. And on that note, we think members should have a real say in how their credit card evolves over time.