Fed Leaves Rates Alone (It seems like any news relating to the real estate or mortgage industries is bad news lately. )
The housing market has definitely slowed down, and many people are concerned about the overall effects on the economy, job growth and consumer spending.
But amidst all of this bad news, we finally see a glimmer of hope, and it has to do with the dreaded Federal Reserve.
They have decided for another time that they will not raise the rates on one of the country’s key interest rates.
A September 20, 2006 article by Martin Crutsinger of The Associated Press, “Fed leaves interest rate at 5.25%,” discusses the latest Fed meeting.
“The Federal Reserve left a key interest rate unchanged on Wednesday as falling energy prices helped to restrain inflation pressures. Federal Reserve Chairman Ben Bernanke and his colleagues issued a brief announcement saying they would leave the federal funds rate, the interest that banks charge each other, at 5.25 percent.”
This is big news because, before their last meeting in August, the Fed had raised interest rates a consecutive 17 times in a row in an effort to curb inflation.
They stopped the consecutive hikes at their August meeting, and everyone was anxious to see what was going to happen at the meeting held today, and it is overwhelmingly good news for most Americans.
“The decision represents a break for borrowers. It means that banks' prime lending rate, the benchmark for millions of consumer and business loans, will remain at 8.25 percent.”
“The decision to leave rates alone for a second time had been widely expected in financial markets, given recent favorable developments on inflation. Oil prices have fallen by more than 20 percent over the past two months and a cooling housing market has contributed to a slowdown in overall growth. The Fed is trying to engineer a soft-landing for the economy in which growth is slowed enough to keep inflation from getting out of hand without overdoing the credit tightening and raising the chances of a recession.”
Although it does seem as though inflation is under control, there are still concerns about its presence. They also acknowledged the economic slowdown that is taking place throughout various sectors of the economy.
“The Fed took note of the slowdown that has occurred in the economy, saying that ‘economic growth has moderated from its quite strong pace earlier this year’ which it attributed to the cooling housing market and the impact of previous Fed rate hikes and higher energy prices. Analysts are split on whether the current pause will be indefinite or whether at least one more rate increase will occur before the end of the year.”
Various factors have contributed to the decreased risk of an impending inflation, and one actually has to do with the slow housing market.
“Also helping to lower inflation pressures has been a big slowdown in housing following a five-year boom in which home sales soared to record highs, powered by the loan salarys$$$ rates in four decades. That situation has reversed this year, with sales of both new and existing homes falling. And the government reported Tuesday that construction of new homes and apartments plunged in August to the slowest pace in more than three years.”
Now most analysts are not expecting interest rates to go up any time in the near future, unless something drastic occurs with inflation. But if everything continues to run its course, things should be okay for the economy.
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