• Lisa Simpson
• Jul 1,2010
• In: Foreclosure

Federal Reserve Continues with Near Zero Interest Rate

The Federal Reserve announced that it will keep the interest rates of short term loans at the near zero point for “an extended period”. It was argued that challenges to economic growth continued to persist apart from new troubles abroad. The decision regarding the rate was taken after the end of a meeting lasting two days.

Analysts had been expecting this because of no noticeable improvement in consumer spending and unemployment figures. Whenever the committee holds a meeting the investors and economists meticulously dissect their statements hunting for hints about their fundamental intentions and trends to be followed. And foreclosures and unemployment are directly related.

Regarding growth the Fed altered slightly the wording and admitted that inflation was low and so too prices. Paul Ballew of Nationwide Insurance and formerly of the Federal Reserve said, “It was a little bit more ca utious and a little bit more somber in terms of its tone”.

Ballew warned about interpreting too much from a single statement. He said that the message seemed to indicate that recovery of the economy was not without momentum but there were restraints like excess of capacity and weak labour segment. He said that they were trying to present “a balanced point of view”.

Recently worries have focused on what impact the debt crisis of Europe would have on the equity and credit markets of America and the world. This was highlighted in the statement by the Fed that read, “Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad”.

As before the committee voted to maintain the rate of interest at nearly zero (0.25%) – the level it has been since 2008 December. The committee further stated that it anticipated that the economic climate would “likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

However one of the members, Thomas M. Hoening voted against the action as he had previously done. Hoeing felt that the necessity was no longer there to keep the rate at that low level. Negatively it could put limitations on the flexibility of the banks to increase their rates even modestly later on.

Referring to the pace of recovery of the economy, the Fed did not change its previous stand and said that the recovery was “likely to be moderate for a time.” But regarding growth there was a change in its language saying that it was “proceeding.” Last April it had said that the economy “has continued to strengthen”.

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