Interest rates are going to stay low

In other words, move along everyone — there’s nothing to see here …

From the link:

Jitters that financial strains may derail the U.S. economic recovery mean the Federal Reserve will be in no rush to end its ultra-low interest rates, comments by officials of the U.S. central bank suggested on Wednesday.

One senior Fed official went as far as acknowledging that falling inflation could spur the central bank to further ease financial conditions, and another policy maker would not rule out additional measures to stimulate growth.

When asked whether lower inflation would prompt the Fed to try to push borrowing costs even lower, Atlanta Federal Reserve President Dennis Lockhart told a Rotary Club audience: “It’s appropriate to think about what we would do under a deflationary scenario. At this point, no specific planning in my view is occurring but discussion in all likelihood will be on the agenda.”

Banks v. homeowners

I’ve already blogged about what banks are doing to small business, and the overall economy as a result. Here’s more of the same tight-fisted lending practices (with those tight fists wrapped around taxpayer’s money via the various bailouts) geared toward homeowners looking to refinance during this time of ultra low interest rates courtesy of the government.

From the second link:

Mortgage rates in the United States have dropped to their lowest levels since the 1940s, thanks to a trillion-dollar intervention by the federal government. Yet the banks that once handed out home loans freely are imposing such stringent requirements that many homeowners who might want to refinance are effectively locked out.

The scarcity of credit not only hurts homeowners but also has broad economic repercussions at a time when consumer spending and employment are showing modest signs of improvement, hinting at a recovery after two years of recession.

IRS interest rates remain unchanged for Q4

The news is something of no news — rates will remain the same for Q4.

The release:

Interest Rates Remain the Same for the Fourth Quarter of 2009

IR-2009-73, Aug. 14, 2009   WASHINGTON — The Internal Revenue Service today announced that interest rates for the calendar quarter beginning Oct. 1, 2009, will remain the same. The rates will be: four (4) percent for overpayments [three (3) percent in the case of a corporation]; four (4) percent for underpayments; six (6) percent for large corporate underpayments; and one and one-half (1.5) percent for the portion of a corporate overpayment exceeding $10,000. Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point. The interest rates announced today are computed from the federal short-term rate during July 2009 to take effect Aug. 1, 2009, based on daily compounding. Revenue Ruling 2009-27, announcing the rates of interest, will appear in Internal Revenue Bulletin 2009-39, dated Sept. 28, 2009.

IRS dropping interest rates

Good news from your friendly Internal Revenue Service — interest rates are dropping for the first quarter of 2009.

The release:

Interest Rates Drop for the First Quarter of 2009

IR-2008-139, Dec. 10, 2008            WASHINGTON – The Internal Revenue Service today announced in Revenue Ruling 2008-54 that interest rates for the calendar quarter beginning Jan. 1, 2009 will drop by one percentage point. The new rates will be:  Five (5) percent for overpayments [four (4) percent in the case of a corporation]; Five (5) percent for underpayments; Seven (7) percent for large corporate underpayments; and Two and one-half (2.5) percent for the portion of a corporate overpayment exceeding $10,000. Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis.  For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points.  The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points.  The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point. The interest rates announced today are computed from the federal short-term rate during October 2008 to take effect Nov. 1, 2008, based on daily compounding. Revenue Ruling 2008-54, announcing the new rates of interest, is attached and will appear in Internal Revenue Bulletin No. 2008-52, dated Dec. 29, 2008.

T-bills lookin’ good, interest under one percent looming?

The Fed has gone all topsy-turvy. I’m not certain what to make of this news.

From the link:

Federal Reserve Chairman Ben S. Bernanke signaled he’s ready to dig deeper into the central bank’s toolkit after cutting interest rates almost as much as he can, opening the door to a shift by policy makers this month.

Bernanke yesterday said he may use less conventional policies, such as buying Treasury securities, to revive the economy, because his room to lower the main U.S. rate from the current 1 percent level is “obviously limited.” Even so, reducing the rate is “certainly feasible,” he said.

Policy makers may decide at their next meeting Dec. 15-16 on the details of carrying out such a shift, which might resemble the “quantitative easing” strategy the Bank of Japan pursued in 2001-2006 after driving interest rates close to zero. The Fed chief’s readiness to rely more on adding reserves to the banking system prompted JPMorgan Chase & Co. economist Michael Feroli to refer to him as “Bernanke-san” in a note yesterday.

The economic malaise is truly international

We do live in a world economy. Banks are closely tied together across borders and oceans, and even relatively potent economies are hurting because it’s pretty hard to export when there’s no buyers.

From the link:

The U.S. economy shrank in the third quarter as the financial crisis raged while Japan and Germany said on Thursday they would spend billions of dollars to provide a cushion against a deep global recession.

The spending measures would complement a series of interest rates cuts, including those from China, Norway and the United States on Wednesday.

 

Japan may cut rates on Friday and the European Central Bank, Britain and Australia are expected to follow next week, which would come just as data showed a rapid deterioration in major economies.

 

“A harsh storm seen only once in 100 years is raging,” Japanese Prime Minister Taro Aso told a news conference.

 

The world’s largest economy shrank at a 0.3 percent annual rate in the third quarter, the sharpest contraction in the United States in seven years.

 

The specter of recession had unnerved U.S. consumers, who slashed spending at the sharpest rate in 28 years in the third quarter, undermining growth.

Bailout news, jobless rate, short selling and rate cuts — oh, my

I’ve done a lot of blogging on the bailout and derided this ongoing process — including banning shorting some stocks (see more below on this) — as “corporate socialism.” I still don’t like the bailout, but now that the Senate passed its revised version I’m guessing the House will go along tomorrow unless the GOP stalwarts feel particularly feisty.

From the second link:

House members are getting another chance to vote on a financial bailout bill that has infuriated millions of voters after the Senate added tax cuts and other sweeteners and passed it handily.

Senators advanced the much-criticized measure in a 74-25 vote late Wednesday, sending it to the other side of the Capitol for a showdown vote expected Friday. The move was calculated to win over enough dissenting House members to get the bill through and reverse Monday’s stunning defeat in the House, party leaders there planned to press rank-and-file members Thursday for the dozen converts they believe they need.

But bailout news isn’t the only story with this ongoing financial crisis. Go below the fold for more on the jobless rate, the latest on shorting and possible additional rate cuts.

Fed not raising rates before next year

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.