Posts Tagged ‘federal funds rate’

Is the Fed About to Hike Its Federal Fund Rates?

Wednesday, May 12th, 2010

Economists can’t decide if inflation will force the Fed to raise its interest rate.  The recent release of minutes from the Federal Reserve’s March meeting may hint that the nation is experiencing a sustainable recovery and is possibly facing upwards inflationary pressure.  The yield on 10-year Treasury notes has already surpassed four percent for the first time since last June; oil and copper traded at their highest prices in 18 months.

With Labor Department data showing increased private-sector hiring (the fourth time in five months), some traders are betting that the Fed will have to raise its target federal-funds rates to 0.5 percent by November.  Even so, Fed Chairman Ben Bernanke doesn’t appear to be in a hurry to increase interest rates too quickly for fear of putting the brakes on the economic recovery at a time when the unemployment rate is hovering around 10 percent.  Job openings climbed in several sectors of the economy in February, including retail, manufacturing, transportation, restaurants and hotels, according to the Labor Department.

“In the market’s mind, the Fed is always about to hike,” said Ethan Harris, chief economist at Bank of America Merrill Lynch.  “But the Fed is in a very different mindset right now.”  Harris expects the Fed will raise its interest rate to one percent at the end of 2011.  Doug Roberts, chief investment strategist at Channel Capital Research, agrees.  “Concern with unemployment, which is expected to decrease slowly at best, indicates rates may remain low for much longer than people anticipate unless we get inflationary pressures,” Roberts said.

Fed Plans to Stay the Course

Thursday, January 21st, 2010

A Federal Reserve official predicts that 2010 will see a continuing moderate economic recovery withFederal Reserve plans to maintain its nearly zero interest rate policy for the time being.  interest rates kept “exceptionally low” to encourage job creation.  Elizabeth Duke, a Fed governor, said “In the current environment, the Federal Open Market Committee (FOMC) continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.  Such policy accommodation is warranted to provide support for a return over time to more desirable levels of real activity and unemployment in the context of price stability.”

The Fed slashed interest rates to nearly zero in December 2008 in reaction to the worst recession in 70 years, and created other emergency lending facilities.  Speaking to the Economic Forecast Forum in Raleigh, NC, Duke pointed out that recent data on production and spending indicate that economic activity increased at a “solid rate” during the 4th quarter of 2009.

Duke was quick to point out that credit remains tight for businesses; she believes that continued growth is dependent on additional progress in fixing financial markets and re-establishing the flow of credit to households and small businesses.  The Fed will adjust policy if any changes occur in economic conditions.  According to Duke, the Fed has “a wide range of tools for removing monetary policy accommodation when that becomes appropriate.”

How Low Can the Fed Go?

Tuesday, December 30th, 2008

The Federal Reserve is pulling out most – if not all — of the stops to thaw credit.  The central bank has cut its federal funds rate for overnight borrowing to just 0.25 percent, the lowest level ever.  But the move is likely too little, too late because the problem is not the lack of capital — but a lack of confidence.  Marginal rate cuts won’t help commercial real estate.  Rather, the buy-back of real estate securities and extending credit are needed to fuel recovery.

The Fed’s Open Market Committee had been expected to cut the fed funds rate to 0.50 percent, so the drop was a bit of a surprise.  “The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability,” the statement said.  Possibilities are the ongoing purchase of agency debt and mortgage-backed securities, as well as the “potential benefits of purchasing longer-term Treasury securities.”

http://www.nytimes.com/2008/12/17/business/economy/17fed.html

Fed Chairman Bernanke Takes Steps to Restart the Economy

Friday, November 7th, 2008

Ben Bernanke has spoken.  The Fed chairman and the Federal Reserve moved recently to stimulate the economy when the policy-making committee cut the federal funds rate – the rate at which banks lend to each other – to just one percent.  This represents a half percentage point cut from the previous 1.5 percent rate.  By contrast, during the summer of 2007, this rate was 5.25 percent.

There is more good news.  Treasury rates have stabilized.  The value of the dollar and the yen are soaring.  The price of oil has fallen to less than $70 a barrel.  The New York Stock Exchange rose nearly 900 points in a single day, following the lead of markets ranging from Tokyo to Hong Kong to London.  The inflation rate is just 4.9 percent.  Unemployment is 5.7 percent – a lower proportion than was seen during previous recessions of recent decades.

And, according to NAI Global’s recent Capital Markets Update, the doomsayers who describe the current situation as “the worst economic situation ever” either are very young or have short memories.  The seemingly endless stagflation of 1973 – 1981 was far worse; so was the collapse of the savings-and-loan industry from 1989 – 1993.  The dot.com failure and September 11 wiped out more wealth when compared with the GDP.

Commercial real estate is in far better shape than the early 1990s, thanks to lower vacancy rates, higher rents and shorter construction pipelines.  Delinquency rates are virtually non-existent, though that situation could easily change.  Published in September of 2008, NAI Global’s report projects that recovery will occur within nine to 15 months.