Lower interest rates: So what?

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

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

Any noticeable changes from the central bank shuffling $400 billion of its portfolio are likely to be mixed. Although borrowers may benefit from lower interest 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 reflected the limited outlook for the program's impact. If the Fed's move spurs the economy, investors could see their portfolios climb. But the initial response of investors Wednesday was a sell-off.

Prospects for sustained improvement are still significantly hindered by the shaky job and housing markets as well as Europe's spreading debt crisis.

If the initiative succeeds in helping the economy regain momentum, Operation Twist may be as important for what consumers don't experience — another recession — as for what they do.

"The impact on consumers is pretty minimal," says Greg McBride, senior financial analyst at Bankrate.com.

Some put it more bluntly. For consumers, the new plan is "a big snore," says Glenn MacDonald, professor of economics and strategy at Washington University in St. Louis.

Nonetheless, some rates that affect consumers may see changes in the months ahead as a result of the decision.

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

MORTGAGE RATES

Mortgage rates are a focus of the new plan. The Fed intends to sell $400 billion of its shorter-term Treasurys to buy longer-term Treasurys by June 2012. And it will reinvest principal payments from its mortgage-backed securities to help keep mortgage rates ultra-low.

These steps alone won't spur a housing boom.

Interest rates already are at the lowest level in six decades, averaging 4.09 percent on a 30-year fixed mortgage and 3.30 percent on a 15-year fixed.

Prospective homebuyers aren't putting off home purchases because rates are too high. They're holding off because they're lacking confidence. They're worried about a recession or job loss and are unwilling to take on more debt, even at lower rates, or aren't able to qualify. Others see no reason to jump into the housing market when prices are still falling.

Still, the Fed hopes to at least stimulate more refinancing activity as a way to get the economy moving.

"This may make it even more affordable for those few who can afford to buy," says Diane Swonk, chief economist at Mesirow Financial Inc., a Chicago-based financial services firm. But it only helps a select group, she says, leaving most would-be homebuyers still unable to take advantage.

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, assuming the economy remained weak; the prime rate has historically tracked the federal funds rate.

But credit card rates won't get any lower because of the Operation Twist, according to McBride. And if it fails to improve the limping economy, they could even rise.

That's because the prime rate and federal funds rate don't necessarily move in lockstep with each other. The prime rate reflects the actual rates at which banks are lending to each other 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 each other.

Similarly, the rates on car loans are expected to be unaffected. From the consumer standpoint, borrowers will benefit only from better rates on longer-term loans: fixed-rate mortgages, fixed-rate home equity loans and, for entrepreneurs, fixed-rate small business loans.

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 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.

But that's not assured.

The Fed's reshuffling of debt may well have the unintended consequence of making it harder for banks to make money from lending, McBride says. If that happens, they'll be less willing to pay as much on consumer deposits.

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.

Another potential negative is that the cost of insurance could rise. Lower rates would be bad news for insurance companies, particularly life insurers. That's because they hold much of their investment portfolios in long-term bonds. If their investment returns drop they could compensate by charging consumers more, says David Nanigian, assistant professor of investments at The American College in Bryn Mawr, Pa.

But neither of these impacts should be drastic. Long-term interest rates aren't expected to come down more than 0.2 percent point in the wake of the Fed action.

STOCKS

Analysts say Operation Twist could raise stock prices by boosting confidence and helping borrowers and savers.

But Fed Chairman Ben Bernanke can only dream of providing the stock market with anything close to the 28 percent rally that took place over seven months following the announcement last fall about the second round of quantitative easing, or QE2 — a $600 billion program to buy government bonds.

Even if stocks head upward for now, Joseph LaVorgna, chief U.S. economist at Deutsche Bank, doesn't see anything for investors to cheer in the Fed's actions.

"As long as the events in Europe are continuing to play out, that's going to keep a lid on equities," he says. "These actions won't do much other than cause people to say, 'OK, what next?'"