With Inflation Concerns Still Muted, Federal Reserve Leaves Rates Unchanged
The Open Market Committee once again agreed to keep interest rates unchanged at between 0% and .25% this week. As long as inflation concerns remain muted they would prefer to keep rates as low as possible in order to stimulate a faster recovery.
Although last quarter’s GDP numbers were still negative, they were better than what many economist had forecast and there are increasing signs that economic growth will turn positive by year’s end. While that may be the case, it should be pointed out that with consumers unable to do so, it has fallen to the federal government to try to spend it’s way out of the current recession.
It will still be some time before consumers will feel like there’s an actual recovery with unemployment expected to climb up to the end of the year. Whether or not the Fed will be able to keep rates at their current level until there is actual job growth remains the big question.
Much of this will depend on how the price of oil reacts as economic conditions start to improve, if speculators start pushing the price up once again, like they did a year ago, it could quickly derail any chance of a timely recovery. That would also likely lead to a rise in commodity prices in general but at this point the demand figures would seem to preclude that.
If rates can remain low for an extended period of time, it would also go a long way in helping out the housing markets, which has seen increased buying activity in recent months. However, high foreclosure rates remains a problem for the banking system, clogging their balance sheets with toxic assets.
So even if GDP does start to rise once again in the next couple of quarters, it doesn’t mean by any stretch of the imagination that we are out of the woods yet.
