Just like their government, consumers and individual investors will avert immediate disaster if the debt ceiling agreement wins congressional approval by today. The stock market shouldn’t crash, and interest rates won’t start skyrocketing.
But even before a vote took place, it was clear that the deal carries implications for Americans’ borrowing, spending and investments. The outlook for various areas of personal finance.
STOCKS
The short-lived nature of Monday’s rally after a tentative agreement was announced underscores just how skeptical investors are in the face of weak economic data. After surging nearly 140 points at the opening, the Dow Jones industrial average tumbled on a weak manufacturing report. It was down as much as 145 points before finishing the day down 11.
BONDS
If Congress raises the debt ceiling no later than today, a potential default will be avoided but a downgrade could remove the nation’s gilt-edged AAA debt rating. If it does come to pass, a downgrade could send Treasury yields modestly higher, with corporate, municipal and other bond issues doing the same.
CREDIT CARDS
Higher costs on credit cards are not imminent, but rates could creep higher if there is a downgrade. The recent federal credit- card act prevents rate hikes on existing balances. But interest rates would go up for most people on new charges if a downgrade leads to higher borrowing costs for banks.
MORTGAGES AND LOANS
A downgrade would nudge interest rates higher on a variety of consumer loans. Not only would Uncle Sam have to pay higher borrowing rates, so would everyone else.
That’s because many interest rates are pegged to U.S. Treasurys.
So if a downgrade pushes up Treasury rates, mortgage, corporate and other loans would rise too.
Already-tight restrictions on mortgage lending could get tighter.
STUDENT LOANS
The debt deal increases funding for Pell Grants, which provide up to $5,550 for low-income students. But the amount will still fall short of what’s needed, leaving the program at risk of future cuts, according to Mark Kantrowitz, publisher of the FastWeb and FinAid websites on college aid.
MONEY MARKET FUNDS, CDs
A downgrade would not force money- market funds to sell their Treasurys, so they should remain stable. Although the funds are required to own only high-quality securities, a downgrade wouldn’t force an immediate sell-off.
