The Federal Reserve unexpectedly raised the emergency interest rate — what banks pay to borrow directly from the government — to 0.75% last week.
Reserve Chair Ben Bernanke stressed there are no immediate plans to raise the federal funds rate, the key lending rate that is used as a benchmark for the interest paid on credit cards, home equity loans and many business loans, said CNNMoney.com.

In an effort to spur the economy, the federal funds rate has been near zero since December 2008, but some economists contend that keeping interest rates so low doesn’t help the economy, and in fact, could raise inflation.

Critics say that the low rates contribute to banks not lending to consumers and small businesses. “One of the reasons lending is having such a hard time getting off the ground is that interest rates are so low,” Brian Wesbury, chief economist at First Trust Portfolios, told CNN. “Why would someone lend to a risky small business at 3.5%, especially if you expect rates to go up?”

Bernanke and others believe that raising interest rates could derail recent economic gains, especially in the housing market. Analysts say even a modest rate increase could lift mortgage rates and create another wave of home foreclosures, according to CNN.

Tags: Ben Bernanke, business loans, ederal funds rate, emergency interest rate, federal reserve, home equity loans, home foreclosures, housing market, inflation, mortgage rates, redit cards, small business, Small businesses

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