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Fed keeps rates same. Mistake?
November 4th, 2009, 11:21 am · 37 Comments · posted by Jon Lansner
The Federal Reserve today said it’ll keep its interest rates at practically zero while noting it found a pulse in real estate …
Information received since the Federal Open Market Committee met in September suggests that economic activity has continued to pick up. Conditions in financial markets were roughly unchanged, on balance, over the intermeeting period. Activity in the housing sector has increased over recent months. Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales.
Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.
With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.
In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
- Full Fed statement HERE!
Worry brews in some circles that too much cheap money — the Fed last raised the key “Fed Funds” interest rate its control in June 2006 — heightens the risk of future asset bubbles and broader extreme inflation.
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As long as deflation is a threat, the FED will keep rates low in order to promote a recovery. Once inflation starts to pick up, they’ll have no choice but to change positions.
‘Once inflation picks up’, its too late.
Your cash has lost 25% of its value since 1999 during a time where inflation was in the ‘range’ that the Fed thinks is OK. That’s painful.
Imagine how much the value of your money will go down with inflation outside that range.
Inflation is the biggest tax on Americans. It punishes savers and rewards debtors. Is that any surprise, given that the US Government is the biggest debtor in the world?
Amen Gary.
Welcome to the modern economy. The economy is driven on consumer spending and borrowing. You call inflation an insidious tax (calling it a tax is pretty dishonest; if you knew anything about the economy it’s the banks that create the money when they lend, dictated by the Fed’s guidelines), but deflation is far more harmful to the economy than a reasonable amount of inflation.
Go on, horde your gold and precious metals. There’s a good reason why we no longer operate on a standard where money is tied arbitrarily to some fancy rock.
Yeah you’re right…there is an absolute reason we don’t use gold as a currency. It is not as prone to manipulation from FED.
Who benefits from deflation? In the long run the people holding the dollars do. Purchase power is increased. The banks lose from deflation. Their ability to create money from thin air as well as the fractional reserve law has taken what was once $1 when first printed to now being worth .05 of its original value.
At the end of the day you are completely wrong about inflation. It is a hidden tax on the people as the cost for everything purchase goes up with the value of their dollar declines.
Did you not learn the lesson of the weimar republic? Are you interested in repeating the need to have a wheel barrel full of dollars to buy a loaf of bread? because that is where we are headed.
For the record…
http://freedomforthepeople.wordpress.com/2009/11/03/international-monetary-fund-sold-200-metric-tons-of-gold-to-india/
Mike,
You can’t be serious…You are clearly suffering from Stockholm’s syndrome. The “modern economy” you speak of is on life support. The only reason the continued inflationary practices of our “modern economy” are not buried 6 feet under is because the financial terrorists (Goldman, Fed Res., etc) are STEALING our money through calculated bailouts and “stimulous” packages!
Let’s see, we have a nation full of broke citizens, a broke government, broke regulators (FDIC,etc), broke industry, etc, etc. This modern economy you speak of sounds really healthy!! You’re a perfect consumer in the eyes of the corporate powers that are running (and ruining) this country. Keep consuming like an insatiable rat; remember Mike, even if you win the rat race you are STILL A RAT!
fiat system we have today - a standard tied arbitrarily to thin air or paper. What’s the difference? one is more prone to manipulation?
won’t home prices drop if the rate rises?
Of course, not because we’ll be able to continuously draw money from our appreciating homes to fuel our consumer lifestyle, creating jobs which will inflate incomes ahead of rate increases. No one should ever pay off a home loan, just keep making it bigger!
The Fed is going to keep rates down for a very long time. Wall Street banks such as Goldman Sachs are making tons of money in the carry trade. Getting money from the Fed at near zero percent and turning around and buying Brazilian government bonds paying 15 percent plus the boost in the currency exchange rate because of the falling dollar. It’s too big of a business to take the punch bowl away.
feds+ obama = our worst president that is a blatant criminal
hey lansner- arent you supposed to be the wharton graduate expert?
why arent you giving an opinion on the subject? all youve done is what
any high school dropout can do- post an article thats already been
posted by every media outlet in the country- parrot what the fed has
thrown out — “the economy is recovering but we are leaving interest rates at zero for an extended period”– well if the economy and housing
markets are really recovering why pray tell does the fed need to leave
rates at zero- and keep buying mbs’s- and why does congress need
to extend the 8,000 fraud laced tax credit? because its all a scam- thats why– diane olick on wells fargos interest only payments and
their lies as to why they are doing it–
http://www.cnbc.com/id/33622884
Prices will drop after first 1Q 2010. (Meridith Whitney-cnbc)
The Feds MUST keep rate low. There are too many people on adjustable loans that cannot refinance because they are upside down on the value. If you raise the rate, they will not e able to afford the monthly payment and will walk away from the house.
This is the only way to avoid another forclosure surge. Rates need to trickle upward so these people can pass through the system over a period of time and not all at once.
The claim has been made by the government that we have a 3.5% GDP growth rate for the last quarter. If this were true (it’s not actually . .. but IF IT WERE true), then the appropriate thing to do would be to start bumping rates up slightly. If you believe the 3.5 number, then you should view leaving the rate the same is the wrong move.
Fact is, they know the economy is contracting. Leaving rates near zero is their only option.
How can we believe such reports. That the day later it was critized by wall-street experts.
It was full of errors.
No mistake if your object is to wreck the U.S. economy, Obamas policies are RIGHT ON TRACK to reach his goals .
Wreck the US economy? It was wrecked before he came into office. Obama is doing exactly the right thing with deficit spending during a economic recession/depression. I can’t believe the utter hate for this man that some of you share.
Problem we had leading up to this was a healthy economy teamed up with massive deficit spending that led to prices (inflation) going sky high. You shouldn’t have both. With a healthy economy that’s when the government should pull back.
Healthy economy? It was a fraud. A ponzi scheme. The single greatest housing bubble in human history fueled by an orgy of ever-increasing debt and ever decreasing lending standards. Ponzi schemes look great until they collapse.
I agree with you that the economy was effectively done by the time Obama got into office. But the amount of money he is spending to stop the bubble correction is ridiculously irresponsible and is NOT the type of deficit spending we need. It is entirely wealth-transfer spending ($24K for every extra clunker sale, $100K for every additional tax-credit home sold, bailouts for fraudulent banks, etc) that merely pulls demand forward and doesn’t actually produce, manufacture, or build anything.
You can’t believe the utter hate for Obama…well look in the mirror because you appear utterly biased in the opposite direction. Anyone can look great compared to the fiasco that Bush was, but this “Obama is the messiah and is incapable of wrong” attitude from the Obama nut-huggers is over the top.
It doesn’t matter if it was a ponzi scheme or not. The government should’be pulled back spending at that point.
Obama has to spend at this point. It’s the right thing to do during a recession/depression. The flow of money throughout the economy is vitally important. Public spending has dwindled. It
Utterly biased? The only thing I’ve defended Obama was when people make stupid remarks that this was all his fault for the dilemma we’re in. If Bush was the president now, I’d be defending him. Christ, I didn’t even vote for Obama!
ZIRP, it’s what’s for deflation-dinner.
Japan style “recovery”….coming to an economy near you.
In spite of the Feds keeping the interest rate low the credit card companies are doubling and tripeling the interest rates they charge on balances. Other than greed and beating the date government restrictions go into affect how is this justified? One’s credit history doesn’t matter, long term, conscientous customers are affected.
Retailers hope for a better holiday season than last year. Most people I know are cutting back even more as the rate increases either went into affect last month or hit this month.
I’m surprised there have not been more articles and outrage over the huge increase in rates and minimum payments.
The Federal Reserve has cornered themselves (and, consequently, the American public) in a no-win situation.
By keeping rates artificially low, in an attempt to stall off further falls in the housing market, the Fed has made US debt much less attractive to foreign investors. Why buy US treasuries when the interest paid doesn’t keep pace with inflation?
As treasuries become less and less attractive to foreign investors—who will sell—or simply not add to their portfolios, interest rates will rise , no matter what the Fed does.
Had the Feds raised rates instead of lowering them, it would have precipitated an even more ominous fall in the housing market than what we’ve seen already.
By keeping rates lower, the idea is to stimulate the economy by encouraging banks to lend. This, all know, the banks are still not doing; they are afraid that they won’t be repaid.
What the Fed is doing by keeping rates artficially low, is the condonation of the demise of the US dollar, evidence of which is shown in the price of gold….which will go much higher, believe you me.
The further downfall of the economy is only being stalled by the Feds keeping rates artifically low, and nothing else. The result will be that infaltion will, within a few short years, rear its very ugly head, gold will skyrocket, housing will not bottom until 2013, and the REAL unemployment figures will be much higher than reported by the main stream media.
The only ones benefiting from these low rates are the banks. Consumers are being screwed because their savings are earning pennies while banks are borrowing from the Fed at a ridiculously low rate. And they’re still hoarding money while raising fees and refusing to make loans to well-qualified borrowers.
To paraphrase a law enforcement saying, this is an example of the “thin green line”.
This if off topic, but check out the listing for:
7732 Pacific Cir
Midway City (MC), CA
There’s a freakin rainbow coming out of the house!
$385K for the condition that it shows; Not too bad.
maybe the fed can print up another 28 billion to pay for
californias unemployment fund lloolllllllllllllllll
http://economy.freedomblogging.com/2009/11/03/state-unemployment-fund-projects-a-273-billion-deficit/
Explaining the problem as if ‘impact of the banking crisis hit in late 2008″
this is akin to : “I fell down and scuffed my knees - damn gravity, curse you!”
As long as the Interest Rate remains the same the owners will keep the prices UP. As soon as the I.R. goes Up the prices will Tumble and we will be right back into the mess that we are now, but only with new owners. PASS DOWN THE HOT POTATO!!!! AND LOL :)
What do you pass down if you are a renter?
Public service warning: shockg is a local realtor or special interest hack and contributes nothing worth while to this blog; and I mean nothing.
Or, UNICEF
Looks like shockg is dreaming of young children again - one sick individual.
Pathetic post shocking-one.
It tells more about you than you should want known. You’re sick.
Jon - maybe it is time to clean up shockg remarks directed to child molestation. Right Mulli? Clearly, shockg lacks basic accepted morals and should be booted from this blog.
Oh, I don’t know - shockg can shine my shoes…