Fed's 'Twist' is seen having mixed effect

Operation Twist doesn't give consumers much to dance about.

The Federal Reserve's latest effort, announced Wednesday, to boost the economy by driving down long-term interest rates won't have a big effect on home and car buyers, savers, or credit-card users.

Any noticeable changes from the central bank plan to shuffle $400 billion of its portfolio are likely to be mixed. Although borrowers may benefit from lower rates on mortgages and other fixed-rate loans, savers holding long-term bonds are likely to see their interest income dip.

The stock market's skeptical reaction Thurday - the three major indexes each plunged more than three percent - reflected the limited outlook for the program's impact.

A look at how consumers may be affected in various financial categories:

Mortgage rates. These are a focus of the new plan. But rates already are at the lowest in six decades.

Prospective home buyers aren't putting off home purchases because rates are too high. They're holding off because they're lacking confidence in their job status and in the overall economy. Others see no reason to jump into the housing market when prices are still falling.

Consumer debt. Most credit cards have variable rates that are tied to the prime rate. So consumers can still take some comfort in the Fed's August pledge that it plans to keep interest rates very low until at least mid-2013.

But credit-card rates won't get any lower because of the Operation Twist, said Greg McBride, senior financial analyst at Bankrate.com. And if it fails to improve the limping economy, rates could rise.

That's because the prime rate and federal funds rate don't necessarily move in lockstep. The prime rate reflects the actual rates at which banks are lending to one another and is determined by the market. So even if the Fed fails to raise rates, the prime rate could rise if banks became skittish about lending to one another.

Similarly, the rates on car loans are expected to be unaffected.

Short-term savings. Savers who have been earning next to nothing on their money may see slight improvements. Operation Twist should push up short-term interest rates for money-market accounts "from next-to-zero to something that isn't quite as bad," says James Angel, associate professor of finance at Georgetown University's McDonough School of Business.

Long-term bonds. By buying long-term Treasurys, the Fed aims to drive the rate of those securities down. That means investors in long-term bond funds who sought to play it safe and pocket reliable income could see less of it.

"If you're a retiree who was relying on interest income, this could prove to be a negative depending on where you're invested," says Don Rissmiller, chief economist of Strategas Research Partners.