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Fed Chairman Bernanke Seeks Second Term

[Dec 5, 2009.]


What Does Ben Bernanke Have To Do With Your Home Equity Loan?

Ben Bernanke has been Chairman of the Federal Reserve for the past four years. The Federal Reserve controls monetary policy for the US. They do this, in part, by controlling interest rates. Their main interest rate is called the Fed Funds Target Rate. Most home equity loans have adjustable interest rates based on the Prime Rate. Prime Rate usually tracks the Fed Funds Rate plus three percent. If you have a home equity loan, or are considering one, the person leading US monetary policy should matter to you.

Confirmation Is Likely, But Some Congressmen Are Angry

Senator Chris Dodd is the head of the confirmation committee listening to arguments about Bernanke's reappointment. He stated that Bernanke will be confirmed. He also gave Bernanke effusive praise for saving the country from another Great Depression. Bernanke has worked hard to keep interest rates on home loans at their current historic lows. But there are congressmen who do not feel the same as Senator Dodd. Senator Jim Bunning of Kentucky called Bernanke "the definition of a moral hazard." Bunning promised to do all that he could to stop Bernanke from being reconfirmed. Other senators are also angry, saying that Bernanke bailed out Wall Street and essentially rewarded the people most responsible for the Great Recession. They also believe that he could have done more to prevent the recession from happening in the first place.

What Is the Future of Interest Rates on Home Equity Loans?

If Bernanke is reconfirmed as Chairman of the Federal Reserve, it is likely that interest rates on home equity loans would remain low for an extended period of time. Bernanke has said repeatedly that keeping interest rates low is necessary for the economy to continue its recovery and keep growing. Other Federal Reserve voting members have voiced opposite views stating that GDP will continue to grow at about three percent a year and that interest rates (including those that affect home equity loans) will naturally increase along with GDP. Raising interest rates will be at the front of fighting inflation if the economy starts to heat up too quickly. Although Bernanke is pressing for continued low interest rates, the extremely loose monetary policy that has been necessary to prevent another depression must be unwound soon. Logically this means raising interest rates.


About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.

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