Category Archives: Interest Rates

US Inflation Remains ‘Subdued’, Says Fed

The Federal Reserve ended its two-day meeting Wednesday, and as expected the Federal Open Market Committee (FOMC) did not raise interest rates. Further, in an exact parallel to its last statement, it noted that US inflation remained under control, stating:

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

September inflation data indicated that consumer prices declined 1.3% during the prior 12 months and that core annual inflation, which excludes volatile food and energy prices, rose just 1.5% — well within the Federal Reserve’s comfort range of between 1%-2%.

It appears its benchmark federal funds rate will remain virtually at zero for some time as the "economic activity is likely to remain weak for a time," according to the FOMC.

"The one consistent theme with all the Fed speakers is that they’re not going to raise rates any time soon," Drew Matus, an economist at Bank of America-Merrill Lynch, was quoted on NYTimes.com. "That is the one consistent theme that gets hammered home time and again."

In a unanimous vote, the FOMC decided to keep its key rate unchanged in a range of zero to 0.25 percent.

The released Fed statement follows in its entirety: Continue reading US Inflation Remains ‘Subdued’, Says Fed

Fed: Economy has ‘Picked Up’, US Inflation ‘Subdued’

The Federal Reserve ended its two-day meeting Wednesday, and the Federal Open Market Committee (FOMC) held interest rates steady near zero, as expected. The FOMC followed the meeting with a statement saying that "economic activity has picked up." It also indicated US inflation was under control, stating:

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

To provide support to mortgage lending and housing markets, the Fed noted that it expects to finish purchases of "$1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt" in a slowing pace until the first quarter of 2010.

August inflation data showed that consumer prices had decreased 1.5% during the prior 12 months and that core annual inflation, which excludes volatile food and energy prices, rose just 1.4%. That was the smallest year-over-year gain since February 2004, and well within the Federal Reserve’s traditional comfort zone of between 1%-2%. Continue reading Fed: Economy has ‘Picked Up’, US Inflation ‘Subdued’

Fed to buy $1 trillion in securities, expects inflation to remain subdued

With expectations for inflation to remain under control and in a move to combat the recession, the Federal Reserve on Wednesday said it would pump more than $1 trillion into the economy.

In a statement following the conclusion of its two-day policy meeting, the Federal Open Market Committee (FOMC) said it would:

  • Increase its purchases of mortgage-backed securities by $750 billion, on top of the already announced $500 billion
  • Buy $300 billion of long-term Treasurys over the next six months

The Fed hopes the first measure will pull down mortgage rates and the second will help ease the credit crunch. Immediately following the news, U.S. stocks rallied, bond prices surged and gold prices reversed direction. Continue reading Fed to buy $1 trillion in securities, expects inflation to remain subdued

Long-term inflation target of 1.7% to 2% set by Fed

The U.S. economy has weakened further and a gradual recovery in economic activity isn’t expected until later this year, Fed policy makers agreed, according to minutes released Wednesday and taken during the closed-door Federal Open Market Committee (FOMC) meeting Jan. 27-28.

The committee also noted their outlook had significant "downside risks," and provided a set of informal long-term economic projections, including that of inflation at 1.7% to 2%. After the meeting, the FOMC held the federal funds rate to a range of between 0 to 0.25%, as it first set in December, and concluded low interest rate levels would need to be kept for some time.

The released minutes make it clearer, however, how some members see the potential for excessive disinflation in 2009, or a deflation risk as St. Louis Fed’s Bullard addressed in a speech Tuesday. Deflation is a persistent decrease in general prices, or the opposite of inflation. Continue reading Long-term inflation target of 1.7% to 2% set by Fed

Deflation a key risk in 2009, argues St. Louis Fed President James Bullard

Further disinflation and a possibly "deflationary trap" is a key "near-term risk" for 2009, said James Bullard, president of the St. Louis Federal Reserve Bank, on Tuesday during a speech in New York. Bullard warned,

"Expectations of deflation for the next five years may feed into real interest rates, driving real rates higher just at the time monetary policy would like to move them lower."

Deflation is a persistent decrease in general prices, or the opposite of inflation. Falling prices may seem like good news for consumers, but only to a certain point. If prices mark sustained deflationary levels that strike below the cost to produce goods and services, further economic turmoil can ensue with production cuts, payroll reductions and deepening unemployment. Deflation can intensify debt by making it more expensive, cripple equity and widen home foreclosures.

Bullard addressed the New York Association For Business Economics where he said the recession would likely continue at least to the first half of 2009, and that there is a risk for sustained disinflation and a possible deflationary cycle similar to what the Japanese experienced after 1990. Continue reading Deflation a key risk in 2009, argues St. Louis Fed President James Bullard

Fed December minutes paint darker economic picture, lower inflation

Minutes taken during the closed-door Federal Reserve December 15-16 meeting paint a darker than expected picture for the economy, with further contraction and rising unemployment on the horizon.

At the conclusion of its historic meeting, the Federal Open Market Committee (FOMC) slashed rates to a record low of between zero and 0.25%. The minutes, which provide much more detail and are always released several weeks after the official meeting, cite specific expectations reaching into 2009 and 2010. Continue reading Fed December minutes paint darker economic picture, lower inflation

Fed seen lowering rates toward zero without inflation worries

Greatly reduced inflation pressures and a desire to spark some life into the economy has almost everyone expecting the Federal Reserve to cut its benchmark overnight interest rate from 1% to 0.50%, marking the lowest level on records dating to July 1954.

Plummeting energy prices have taken the sting out of inflation since crude prices tumbled off their record peak near $147 per barrel in July — also when inflation was at its highest for the year. New York crude-oil for January delivery settled to $46.28 a barrel, falling $1.70 on Friday.

Consumer prices dropped a record 1% in October. The Labor Department reports on Tuesday the November CPI, which is the most watched government inflation barometer. Economists expect another record decline to 1.4%. Add in Friday’s report by the government showing producer prices fell to 2.2% and the Fed has an enormous green light to lower rates with little regard for inflation. Continue reading Fed seen lowering rates toward zero without inflation worries

Fed cuts interest rates to 1 percent, expects inflation to moderate

The Federal Reserve lowered its federal funds rate, the benchmark overnight lending rate at which banks lend to one another, by 50 basis points to 1 percent at Wednesday’s end of month scheduled meeting.

The latest rate is the lowest since 2004 and joins a new round of global cuts. China and Norway also cut rates on Wednesday, and other countries are expected to follow suite in an attempt to change the economic downturn and fight the ongoing crisis in the credit markets.

The Feds newest reduction follows on the heels of its emergency 1/2 percent interest rate cut on October 8 when world central banks first joined in their coordinated efforts to try to stabilize financial markets and ease out of the global credit crunch.

Today’s move was widely expected, although a minority of analysts suggested the Fed could cut rates by three-quarters of a percentage point to 0.75 percent, marking a never before seen low. Immediately following the announcement, U.S. stocks inched lower.

The announcement was made by the Federal Open Market Committee (FOMC), who released the following statement:

Continue reading Fed cuts interest rates to 1 percent, expects inflation to moderate

Producer prices fall for second straight month

Producer prices fell in September with lower energy prices, and dropped for the second consecutive month, the Labor Department reported Wednesday.

The Producer Price Index (PPI), which measures prices at the factory door and inflation pressures before they reach the consumer, decreased in September to 0.4%. The drop was in line with analysts’ expectations. September’s decline follows a 0.9% drop in August and a 1.2% increase in July — a month that marked a 27-year high.

Falling energy prices was the key to easing price pressures as highlighted by the stark contrast of Tuesday’s Nymex crude-oil price of $78.63 per barrel compared to a record high near $147 per barrel in July. Energy prices fell 2.9 percent in September after tumbling 4.6 percent in August — a month that marked the biggest drop in nearly two years.

Continue reading Producer prices fall for second straight month

US Federal Reserve and world central banks cut interest rates

Inflation worries were thrown aside as interest rates were cut on Wednesday in a synchronized multi-country response to try to stabilize world financial markets and ease out of the global credit crunch.

Less than a day after Fed chairman Ben Bernanke hinted a rate cut could be in the works, an unscheduled emergency announcement was made by the Federal Open Market Committee (FOMC) to lower its target for the benchmark federal funds rate 50 basis points to 1-1/2 percent.  In a coordinated effort, the European Central Bank, China, Britain, Canada, Sweden and Switzerland also cut rates.

The following was released in a joint statement by the central banks:

Continue reading US Federal Reserve and world central banks cut interest rates