Fed leaves key interest rate unchanged near record low
Filed under: Economy
Faced with lurking dangers to the budding recovery, Federal Reserve policymakers are sure to leave a key interest rate at a record low to entice Americans to spend more and help the economic turnaround gain traction.The economy started to grow again last quarter for the first time in more than a year, although there are uncertainties about the strength and staying power of the recovery, especially after government supports are removed.
Fed Chairman Ben Bernanke and his colleagues resumed meeting Wednesday morning and are likely to note the country's economic and financial improvements when they wrap up their two-day session in the afternoon. But they'll also warn that rising joblessness and hard-to-get-credit for many people and companies will restrain the rebound in the months ahead. Troubles in the commercial real estate market, where soured loans are contributing to bank failures, also remain a concern.
At its last meeting in late September, the Fed opted to stretch out into early next year a key program aimed at forcing down mortgage rates and providing support to the housing market. The central bank isn't expected to veer from that course Wednesday.
Wanting to nurture the recovery, the Fed is widely expected to keep the target range for its bank lending rate at zero to 0.25 percent. If it does, commercial banks' prime lending rate, used to peg rates on home equity loans, certain credit cards and other consumer loans, will stay at about 3.25 percent, the lowest in decades.
"I don't think there is confidence at this point that the economy is firing on all cylinders by itself," said Bill Cheney, chief economist at John Hancock Financial Services. "It is not ready to be weaned off the extra fiscal and monetary support."
Against that backdrop, many economists predict the Fed will maintain a pledge to keep rates "exceptionally low" for an "extended period." The hope is that super-low rates will spur consumers and businesses to spend more, supporting the recovery.
The Fed has leeway to do this because inflation has been low, economists said.
"The central bankers in the U.S. and Europe are considering the exit strategies," said Sung Won Sohn, economist at California State University's Smith School of Business. "Even the thought of an exit strategy could spook the financial markets and raise the bond and mortgage yields, hurting the economy."
Still, there are differences of opinion within the Fed about when it might need to start boosting rates - and how aggressively - to fend off inflation.
Inflation hawks, including the presidents of the Fed banks in Dallas, Philadelphia and Richmond, worry more about super-low borrowing costs and other special supports driving prices higher. But waiting too long could touch off inflation.
If the recovery takes hold, many analysts think the Fed could start to raise rates in the spring or summer. Bernanke and other Fed officials would try to prepare investors, businesses and ordinary Americans of a shift in stance well in advance of any upcoming shift in stance. One clue would come when the Fed opts to drop its "extended period" language, analysts said.
Whenever the Fed starts to boost rates, unemployment likely will still be high, analysts said. The worst recession since the 1930s caused companies to slash jobs and other costs to survive. They won't ramp up hiring until they are confident the recovery is entrenched.
The unemployment rate - now at a 26-year high of 9.8 percent - is expected to keep rising, Bernanke and other Fed officials have said. Economists predict it will hit 9.9 percent when the government releases the latest snapshot on employment conditions on Friday. It could rise as high as 10.5 percent around the middle of next year before declining gradually, analysts said.
Beyond rates, Fed officials in September were conflicted over whether to expand or cut back a program intended to drive down mortgage rates and prop up the housing market, according to minutes of the closed-door deliberations.
They ultimately agreed to slow down the pace of a $1.25 trillion program to buy mortgage securities from Fannie Mae and Freddie Mac, wrapping up the purchases by the end of March instead of at year-end. So far, the Fed has bought $776 billion of mortgage securities.
The central bank was not divided over another part of program to buy $200 billion worth of Fannie and Freddie debt. It has bought $141.6 billion so far.
The Fed's efforts have helped lower mortgage rates. Rates on 30-year loans averaged 5.03 percent, Freddie Mac reported last week, down from 6.46 percent last year.
Meanwhile, the Fed is moving quickly on plans to police banks' pay policies to discourage reckless gambles by executives, traders, loan officers and other employees.
The nation's top 28 banks face a Feb. 1 deadline for submitting employee compensation plans to the Fed. The Fed isn't setting compensation, but it will have the power to reject pay plans - and call for changes in them.
The Fed also will be encouraging - though not requiring - banks to revise this year's pay plans if they are significantly out of step with principles the Fed has recently proposed to discourage excessive risk taking.
Elsewhere, the British government on Tuesday moved to break up two major banks - Royal Bank of Scotland and Lloyds Group - that have been bailed out by taxpayers. At the same time, the government injected more public cash into them.
Copyright 2009 The Associated Press. The information contained in the AP news report may not be published, broadcast, rewritten or otherwise distributed without the prior written authority of The Associated Press. Active hyperlinks have been inserted by AOL.
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Reader Comments (Page 1 of 4)
11-04-2009 @ 2:57PM
tony said...
Are these people crazy ? How can they say that they see signs of growth when more banks are failing eveyday and more people are out of work than ever before ? They are just saying this so they can get more billions of our money again in the near future and call it bail out money. The other 300 billion dollars in bailout money was supposed to stimulate the economy , instead big banks took it all and then claimed they made profits for the quarter and then gave out huge bunuses to their execs. So dont sit there and try and twist the arms of Americans into beleiving that everything is hunky dory right now when millions of Americans do not know where their next meal is coming from or if they are going to have a place to live next month. If the Government would have just sent out checks to citizens to help the recovery by spending they would have done a better job then just releasing 150 Billion dollars to big business and banks only to have them squander every last penney of it within two months and nothing at all to show for it at all !!!! Another thing , why keep blaming this on the Bush administration ? He has been out of office for almost a year now and the national debt is 5 times what it was when Bush was in office so quit blaming his administration. It makes no sense to raise the national debt by borrowing against the country making money from nothing to bail out banks , auto industry , and whatever else this administration decides to make money to bail out.
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11-05-2009 @ 1:13AM
rich said...
thank god the majority of americans arent like these defeatist fools that post here dont you want the economy to recover there such pecimists here
11-05-2009 @ 2:27AM
Mike said...
I dont know if you will understand this reply ,but ......here goes. The economy is like sand in the desert constantly shifting . It cannot be measured by a day here and there . It can only show differences over a given period of time . So people say ..we are still loosing jobs ...well we are still gaining new jobs and the people who lost their old ones and now entering a new ones .Change takes time . It took the prior dope 8 years to get to where we where 9 months ago . Every thing that goes wrong on a day by day basis they blame on Obama like he has some kind of majic wand to make the bad things go away with one wave and create a paradise overnight. Jesus, stop belly ackeing whinning and complaining day after day and do some thing constructive . Want a change well make one .Invent something that will create a new industry . Stop stirring up the mud every single day with your insessiant wimpering . Go out and help a family in need and shut up about all the wrong things in our country . Like President Kennedy said "ask what you can do for your country , not what it can do for you " Semper Fi ...........................
11-05-2009 @ 5:42AM
James said...
Shhhhhhhhhhhhhhhhh, don't say 'recovery' to a republican. Don't say 'we are no longer in a recession.' That's the worst news a republican could hear.
They admitted they want to see President Obama fail, which means they want this country to go into a Great Depression, hoping they will get elected into office in 2010 and 2012. Shhhhhhhhhhhhhhhhhhhhhhhhhhhhh.
p.s. Since March, the Dow Jones is up over 3,000 points and has made me a nice big egg nest. Shhhhhhhhhhhhh.
11-04-2009 @ 3:03PM
AL said...
Just more INSANITY! The government is just printing more money, or borrowing from China. Jobs eh? There won't be jobs created because our jobs were out sourced to China and India a long time ago. Of course the Chinese devalued their currency which is tied to the American dollar and that translates into NO jobs. We have a president and a Congress that only cares about their own pockets beng lined. Mr. Obama prmised that there would be no protectionism but those jobs were American in the first place, so where is the protectionism? We have a fool for a president and a worthless Congress. America is looking at huge inflation if this printing and borrowing money does not stop.
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11-04-2009 @ 3:10PM
UNEMPLOYED said...
WHERE IS THE HELP FOR UNEMPLOYED HOMEOWNERS? WHY IS THE MEDIA OR NEWSPAPERS NOT REPORTING ON ALL THE UNEMPLOYED PEOPLE BEING FORECLOSED ON?? WHERE IS THE GOVERNMENT?? THEY HELPED THE BANKS NOW HELP THE UNEMPLOYED FROM LOOSING THEIR HOMES!
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11-04-2009 @ 3:23PM
pw said...
Hello Fellow Americans,
The only growth you will see is the greed in every level
of corporate America and Government and the National
Debt. This country will be financially ruined by the
stupidity and corruption of our leadership.
1. The only people will get bail out are the ones who
can afford a lobbyist.
2. Banks are stealing us blind. borrow money at
zero % and paying savings at 0% and charging
people 20-30% for credit cards. What a great
reform our Congress is doing for us?
3. The National debt is going to bankrupt this country.
11 trillion dollars. What do you think is cause of
this economic collapse. DEBT.
4. Unemployment is going to kill any chance of recovery.
We are so screwed.
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11-04-2009 @ 5:09PM
Mike said...
. Banks are stealing us blind. borrow money at
zero % and paying savings at 0% and charging
people 20-30% for credit cards. What a great
reform our Congress is doing for us?
I agree I worked and saved my whole life . I saved enough to retire on interest from CD's now my money is worth nothing.
11-04-2009 @ 3:32PM
big dave said...
When all else fails..........PROPAGANDA, PROPAGANDA, PROPAGANDA!!!
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11-04-2009 @ 6:42PM
more hogwash said...
So true big dave! They can't raise rates after printing all the monopoly money.
11-04-2009 @ 3:38PM
Tech said...
The big problemI see is that a deliberate decision was made by a very few capitalists-oil banksters and high powered corporate executives to oursource all manufacturing in the US to Mexico, Brazil, China and India keeping only some defense jobs. With David Rockefeller's groups who pushed NAFTA, free trade, GATT, WTO, etc.-the private bankers who control the FED/IRS scam and therefore credit, money, markets, and big business and have all your Federal Taxes deposited into their private banks, created the CIA from the OSS etc. they have set us up for a global financial corporate "order" in which we really have no real say. Now I used to run a plastics business but all of that was sent overseas but labor is a very small cost with the tooling, machines, and capital beings the big expenses. No reason we couldn't still be producing and competing but China has all that now and Leominster, Mass once the plastics capital of the world died. Machine tooling, steel, auto manufacturing, etc. have all gone under here but Japan makes cars, China, Brazil, Germany, Italy, while we only spend money on "defense". All we now have is this bloated defense and government spending, some agriculture, and Walmart selling us Communist Chinese goodies we used to make. It's a losing situation paying the Communist Chinese for everything and flushing trillions for bombs that just blow up. So they have trillions and we have gone broke! The Wall St.boys can invest globally and trade the markets up or down but I saw executives absolutely looting the country and taxpayers at the last couple of corporations I worked for. Seems like a few top executives felt they had the right to steal as much of our money as possible thinking they could get away and make us bail the country out after they had fleeced it then blame it on "Liberals" or Obama or whoever. The money is in DC with the lobbyists and poltical hacks who get paid of millions to sell us out. I volunteered for one and was digusted. If America is going to suruvive we need to clean out the lobbyists, elect new people and flush DC out. We need to end the private FED/IRS scam and take back control of all the money to the people again. The crooks in the Senate blocked the Audit the FED bill even though over 200 Congressmen signed that and I know why. They don't want anyone to see how they sent 500 billion to foreign banks this year! Or billions to Nissan in Japan etc. or what they've been up to since 1913. The dollar should be tied to gold, silver, coal, rice, real things they can't just print out or it loses it's value and savers lose their life savings. Might be a start but of course it will probably end in a crash and the dollar and country will be broken so the globalist bankers can step in and give us loans we can never pay back buying up the country for pennies on the dollar. Clean coal and trains would be the place to start, then tarrifs on Chinese junk and rebuild manufacturing here. Free Trade has meant one way trade and a flood of money out. Scam.
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11-04-2009 @ 4:36PM
Dave said...
Tech, you, unfortunately for all Americans, are right on. Get rid of the privately held Federal Reserve for starters. If you haven't already, you might want to Google "zeitgeist, the movie". It's a documentary and runs about 2 hours, but well worth the time.
11-04-2009 @ 7:28PM
fanofchet said...
Tech, don't forget the textile & apparel industries in your list of outsourced manufacturing jobs. We now make virtually nothing we wear in this country...2 million jobs lost.
11-04-2009 @ 3:56PM
DAVO said...
THEESE IDIOTS CAN'T HANDLE THE IDEA THAT WE ARE STILL GOING TO COLLASPE . ALL THEY ARE DOING IS JUST REARRANING THE DECK CHAIRS ON THE TITANIC AS THEY EAT THE SEED CORN FOR FUTURE GENERATIONS.
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11-04-2009 @ 4:43PM
Paul said...
Federal government is NOT GOING TO HELP MIDDLECLASS HOME OWNERS don't you get it the US GOVERNMENT IS CORRUPTLY CONTROLLED BY BIG BUSINESS BANKS. ONLY 85,000 HOMEOWNERS HAVE BEEN APPROVED FOR HOME LOAN MODIFICATION AS MILLIONS OF APPLICANTS WHO HAVE APPLIED FOR HOME LOAN MODIFICATION THRU THE BANKS HAVE DENIED AND REJECTED BY THE BANKS. WHERE IS BARNEY FRANK???
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11-04-2009 @ 5:38PM
jeff said...
i would just like to know who or how you qualify ,we have tried for 7 months to qualify and we just keep getting ,we dont know yet, we need more information, it took so long for us to review your application we now need it updated again, we have submitted everything they have asked for and they just keep adding to it, i can solve the problem just let everyone who has a mortgage give them 3 years at a flat 4% and at the end of the time guarantee the balance will be set at a % no higher than your paying now.toooo easy the money they spend on going over appl. they could have already renewed another 85000 loans at a lower rate say 4%
11-04-2009 @ 7:42PM
PAUL said...
Banks are RIPPING OFF MIDDLE CLASS AMERICANS GETTING GOVERNMENT MONEY FOR ALMOST NOTHING , THE BANKS ARE PAYING OUT2 PERCENT ON CD'S AND RIPPING OFF CUSTOMERS FOR 12 TO 29.99 PERCENT ON CREDIT CARD INTREST. THEN THE BANKS INVEST THEIR PROFITS OVER SEAS WHERE THEY CAN MAKE MORE PROFIT AND REFUSE TO LEND HERE IN THE USA. ONE WORLD GOVERNMENT IS SCREWING MIDDLE CLASS AMERICAN TAX PAYERS.
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11-04-2009 @ 5:25PM
Mike said...
I worked and saved my whole life . I saved enough to retire on interest from CD's now my money is worth nothing thanks to Bernanke.
Bernanke is using all the money saved by hard working Americans that saved for retirement as a reserve for banks to use for their pleasure .
Bernake is directly attacking the old retired American and forcing them into poverty and their death beds.
Americans that saved 300thousand or more that expected to retire and survive on 6-8 % interest from CDs are now forced to starve and spend saving to just barely survive because Bardyardke has taken away a fair interest rate so banks can use (our money the retired American that saved ) at a discount. The Banks messed up and all retired Americans that saved are paying for the banks through Bardyardke and his fed Policies falsely keeping interest rates high. Ben Barnyard is nothing more then a Puppet controlled by Kramer who cried for low interest on TV until Barnyard gave in.
Ben tactics stink . He is bailing out banks and big business at the cost of All Americans that saved for a rainy day. We did not save for the banks rainy days we saved for our families and our families future now Barnyard is taking away all our savings.
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11-04-2009 @ 5:29PM
Charles Carter said...
I get the "glass is half full" bit, but not when it is almost bone dry.
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11-04-2009 @ 5:38PM
Mike said...
Sorry I meant false Low interest rates not high sorry
. I cannot believe that Barnyardke is getting away with stealing from the retired and disabled Americans who saved to bail out big business.
Ben and all the Folks involved with stock markets banks etc. rob from the poor to give to the rich and to add insult to felony they do this out in the open .
Who put this goofy loony looking goon Ben in charge of my money?
I liked Ben a lot better in Michael Jackson's song . In Real Life Ben is acting like the Rat that spread the plague. Ben and his bank pals eat money faster then a Rat eats cheese.
Ben the 2 of us that would be you and Kramer?crawl back in Kramer pocket save us from the sight of you while you rob us.
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