Lisa Simpson
Mar 25,2010
In: Finance

Federal Reserve Feels the Time is not yet Ready to Increase Interest Rates

The chairperson of the Federal Reserve Ben Bernanke.

Officials of the Federal Reserve stated that the recovery in the country is not yet strong enough to trigger off inflation and to bring down unemployment so as to warrant bringing an end to the low interest rates.

On 16th March the Federal Reserve gave the assurance that they would retain their benchmark-rate “exceptionally low” for an “extended period.” The phrases were repeated again after a year. The economy is showing signs of weak recovery but employers continue to be reluctant about hiring, building of houses is not picking up speed and inflation will not appear soon. These were the comments made by the Federal Open Market Committee after a Washington meeting.

The chairperson of the Federal Reserve Ben Bernanke and his team mates are waiting for employment to pick up before starting to withdraw from a record breaking expansion of credit said a former Fed official, Charles Lieberman. He said, “It’s very difficult to make a strong case that the economy is in a self-sustaining recovery until we have job growth.” Lieberman is the Chief Investment Officer of Advisors Capital Management LLC of Hasbrouck Heights, New Jersey.

The overnight loans transacted between banks are left at the zero range by the FOMC. It has been at this rate since 2008 December. It is estimated that their plan of buying $1.43 trillion of mortgage-backed debts would be completed by 31st March.

The Federal Reserve has again and again repeated the phrase “extended period” at each of their meetings since 2009 March. Charles Evan the president of Chicago Federal Reserve said that the words have been used in three of four conferences. In a year there are usually eight scheduled meetings.
In the last meeting the officials used another phrase – “housing starts have been flat at a depressed level.” It was shown by the Commerce Department that housing starts fell by 5.9% last February partly because of the severe winter blizzards and storms in the north east and south of the country.
Nobel Laureate Joseph Stiglitz of Columbia University had said that if the Feds discontinued the purchasing of mortgage backed securities the housing crisis would worsen. He said, “The withdrawal of the support risks increasing the interest rate, increasing the number of foreclosures and exacerbating the strain, the stress that American families are already facing.” He noted that the officials had “misjudged things”. His prediction is that there will be more foreclosures and bank failures in 2010.