Posted by Prime Interest Rates on 12/9/07 in Rate Predictions
Twice the Fed had cut rates this year and officials suggested in October that might be enough for the year to help the economy survive all that stress. Then the problems snowballed, leading Fed Chairman Ben Bernanke to sign that one more cut might be needed.
Analysts expect the Fed to trim its key rate, now at 4.5 percent, by one-quarter of a percentage point at the meeting Tuesday. Some even speculate about the possibility of a half-point cut.
Banks, financial companies and other investors who made loans to people with spotty credit or put money into securities backed by those subprime mortgages have lost billions of dollars. Investors in the U.S. and abroad have grown more wary of buying new debt, thereby aggravating the credit crunch.
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Posted by Prime Interest Rates on 11/29/07 in Fed Announcements
Federal Reserve Chairman Ben Bernanke on Thursday hinted that another interest rate cut may be needed to bolster the economy. The worsening credit crunch, a deepening housing slump and rising energy prices probably will create some “headwinds for the consumer in the months ahead,” he said.
Bernanke said he expects consumer spending will continue to grow and suggested the country can withstand the current problems without falling into a recession. But he indicated that consumers could turn more cautious as they try to cope with all the stresses.
The odds have grown that the country could enter a recession. A sharp cutback in consumer spending could send the economy into a tailspin. Against this backdrop, Fed policymakers will need to be “exceptionally alert and flexible,” Bernanke said.
That comment probably will be viewed as a sign the Fed may lower interest rates when it meets on Dec. 11, its last session of the year.
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Posted by Prime Interest Rates on 11/29/07 in Rate Predictions
Wall Street barreled higher Wednesday for the second day in a row, giving the Dow Jones industrial average its biggest two-day point gain in five years after a Federal Reserve official hinted that the central bank may lower interest rates again.
The possibility for lower rates seemed more compelling to investors than persistent concerns about a slowdown in economic growth. The Fed has already reduced rates at its last two meetings, and continues to inject billions of dollars into the financial system through repurchase agreements to help calm the shaky markets. The central bank will hold its final rate-setting meeting of the year Dec. 11.
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Posted by Prime Interest Rates on 11/16/07 in Rate Predictions
A federal reserve official cautioned today that a future rate cut may have limited effect on the economy. In a statement at the International Institute of Finance, he stated “The current stance of monetary policy should help the economy get through the rough patch during the next year.”
He also acknowledged that the last rate cut was influenced in part by the possibility if a large stock market selloff. However, it appears that they believe additional rate cuts could spark inflation and will not have as large of an effect as past rate cuts.
Despite these comments, the market still seems to predict a rate cut, with futures markets predicting a quarter-point cut with 86 percent certainty.
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Posted by Prime Interest Rates on 11/12/07 in Bank Rate Drops
After the last round of fed rate cuts, many banks have dropped their rates as well:
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Posted by Prime Interest Rates on 11/7/07 in Fed Rate Cuts
The Federal Reserve lowered the target for a critical short-term interest rate by a quarter of a point Wednesday, citing continued concerns about weakness in the housing market.But the Fed indicated that it is also worried about inflation, a sign that the central bank may be reluctant to cut rates again at its next meeting in December.
The Fed’s commentary about inflation spooked the markets at first, and stocks gave up much of their earlier gains from the day. But stocks eventually recovered and moved on to close up for the day.
The widely-expected move comes on the heels of a half-point rate cut by the central bank in September and leaves the federal funds rate at 4.5 percent, its lowest level since January 2006.
Not all of the Fed’s policy committee members voted in favor of a rate cut, however. Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, preferred no change to the federal funds rate. The Fed also lowered its largely symbolic discount rate by a quarter of a point to 5 percent. That decision was unanimous.
The federal funds rate, an overnight lending rate for banks, is important to the economy since it influences how much interest consumers pay on credit card debt, home equity lines of credit and auto loans. It also impacts how much it costs corporations to borrow money.
Weakness in the housing market and problems with subprime mortgages - loans made to those with less-than-perfect credit - have led to billions of dollars in writedowns at major financial institutions. For this reason, most investors believed the Fed would lower rates again in an attempt to limit the mortgage meltdown’s spillover into the broader economy.
The Fed’s commentary about inflation spooked the markets at first, and stocks gave up much of their earlier gains from the day. But stocks eventually recovered and moved on to close up for the day.
The widely-expected move comes on the heels of a half-point rate cut by the central bank in September and leaves the federal funds rate at 4.5 percent, its lowest level since January 2006.
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