David Kirkpatrick

July 29, 2008

Fed not raising rates before next year

Filed under: Business, Politics — Tags: , , , , — David Kirkpatrick @ 1:05 pm

This is an interesting article from AccountantsWorld.com covering how the short-term interest rates are not go up before next year given the current market conditions.

From the link:

Earlier in the summer, experts thought rates might go higher by December. But this view has receded in recent weeks as financial markets have destabilized anew and leading indicators point to slower growth over the remainder of the year and into next.

“I am a little less confident than I was before” that the Fed would hike rates this year, said former San Francisco Fed Bank President Robert Parry in an interview.

“I frankly thought we’d see more signs that the weakness of the economy was going to disappear,” said Parry.

The tax rebates have not packed the hoped for wallop. The crisis of Fannie Mae and Freddie Mac has sparked renewed stress in financial markets.

This has put the Fed in something of a box. But investors should keep alert as the Fed is looking to escape.

The simple reason is that, at the moment, almost all Fed officials, both hawks and doves, would like nothing better than to see interest rates move up from the “emergency” low level of 2%.

For the hawks on the panel, it would mean the Fed was backing up its warnings that higher rates are needed to combat ugly inflation data.

For the doves, higher rates would be good news that the economy could be moved out of the intensive-care unit.

At the moment, the doves don’t think the economy is strong enough to swallow the tough medicine of higher interest rates. And they are in the majority.

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