Interest rates remain unchanged but increases are likely…
The Federal Reserve’s aggressive period of interest rate cuts used to prevent the country from falling into a recession is now over. From September to April the central bank, trying to deal with a severe credit crisis and housing slump, cut the federal funds rate at the most aggressive pace in more than two decades – from 5.25% to 2.00%. Credit card rates have followed suit – making credit cards more attractive than ever. But on Wednesday, the Federal Reserve left the federal funds rate unchanged at 2 percent and many experts believe that interest rate hikes are sure to follow in the coming months.
In the Federal Reserve statement, Chairman Ben Bernanke and his colleagues appear to be less worried about the economy slipping into a recession and more worried about inflation. “Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased,” the statement said.
The statement suggested that Fed officials would continue trying to balance the risks of stubborn inflation and continued weak economic growth through the rest of the year. As a result, an interest rate increase is probably not imminent, but most experts believe it’s likely to occur before the end of the year. Futures markets expect at least a quarter-point rate increase by the end of October and are putting a 38 percent chance on an August increase.
Fed policy makers meet again on August 5. The measured language of their statement suggests no inclination to raise rates at the meeting – but more data on inflation and the labor market will be available which could easily change their outlook.
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