OF3-11/03/09 8:25 AM
HOW LONG WILL THE FED KEEP INTEREST RATES LOW?
The Osgood File. I'm Charles Osgood.
When the Fed meets today and tomorrow, those who lend or who borrow will be listening hard to detect any sign whatsoever that the Fed may suspect there'll be interest rate hikes up ahead. Evidence may be sparse, but observers will parse every comma and word that is said.
SOT - Jill Schlesinger, editor-at-large for CBS MoneyWatch.Com
"While it's expected that interest rates will remain at zero when the meeting concludes Wednesday afternoon, economists and investors will parse the accompanying statement for signals of any future changes to Fed policy."
Jill Schlesinger says people will be sensitive not only to the interest rate numbers the Fed puts out tomorrow, but also the accompanying text.
SOT - Jill Schlesinger
"Observers will focus on whether the Fed will stop noting that the Federal Funds Rate will stay very low for a, quote --- 'extended period' --- endquote. The deletion of that soft promise by the Fed could indicate that central bankers are priming the public for a rate hike sometime next year."
Why has the Funds Rate --- and consequently, interest rates --- been kept so low?
SOT - Jill Schlesinger
"The Fed has kept rates at essentially zero percent, because the economy is so weak. The thought is, low interest rates help prime the pumps of the economy, allowing for credit to be easy. The accessibility to money is cheaper --- and that hopefully helps people during a very difficult time."
You might think that financial firms would like to be able to charge higher interest. But that's not the case, says Jill.
SOT - Jill Schlesinger
"The idea that the banks, that large institutions can borrow for essentially zero and then make loans at a much higher rate explains a lot of the positive earnings from Wall Street. A lot of these companies have access to cheap Federal money, and they're using that money --- so, one of the outcomes of low interest rates is that it's been a boon for financial firms."
The Osgood File. Charles Osgood on the CBS Radio Network.
The Osgood File. November 3rd, 2009. |
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