Hope you're enjoying the weekend, folks!
As you know, this week marked a change in behavior for the Federal Reserve Board. On Wednesday, after their two-day Federal Open Market Committee meeting, they announced their benchmark Fed Funds Rate will remain unchanged, at its current 2.0% level.
This was the first non-action in rates since last September. At that point, to stimulate the housing sector, and make business loans more affordable, they began to reduce the benchmark rate, and have done so for subsequent Committee meetings until this month.
Their action - or, this time - inaction, points up the lack of immediate relationship between the Fed Short-Term Rates and mortgage interest rates. Many of the adjustable mortgage loan rates are tied to the London Interbank Offering Rate (LIBOR), rather than the Fed. Fixed rates actually dropped a bit over the last week, after increasing considerably since late May.
Some rates are directly tied to the Fed Funds Rate - credit card interest rates, some auto loans, and many Home Equity Lines of Credit. These rates will most likely remain steady in the short term, based on the Fed action.
This end to rate cutting was widely expected by Fed observers. It seems the threat of fast-climbing consumer prices, brought on by skyrocketing fuel and food prices, has become of greater concern to Fed policy makers than the continued economic slowdown across the U.S.
Fed Chairman Ben Bernanke sees the economy as being in a sensitive and difficult stage. He and most other committee members are not inclined to raise rates this summer unless there are clear signs that Americans' expectations for future inflation are heightened. This could create of a vicious cycle of consumer price hikes.
Actually, one FOMC Member, Richard W. Fisher, President of the Dallas Federal Reserve Board, preferred to raise rates, rather than leaving them unchanged. His dissenting vote was promptly overruled by the rest of the Committee.
The Fed expects inflation to moderate in the second half of this year and into 2009, but they are betting the rate of inflation will not be too high. However, they are concerned that "tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters."
See our post @ BlogChicagoHomes.com from last Thursday, June 26th, for more info, and a link to the full story in the Chicago Tribune from last Wednesday.
DEAN & DEAN'S TEAM CHICAGO
Comments(0)