The US Federal Reserve, after an unbroken two-year stretch of raising interest rates, may now be entering a prolonged period where the central bank keeps rates unchanged.
It could be next June or later before the Fed makes any change in interest rates because of the opposing forces buffeting the US economy at present.
Analysts hold that view because they think inflation is likely to linger at levels that will keep the Fed from cutting rates and economic growth will be too slow to think about raising rates.
The central bank, in announcing on Wednesday that it was keeping the federal funds rate unchanged for a third straight meeting at 5.25 percent, cited the twin dangers it is confronting.
The Fed statement said core inflation, which excludes energy and food, remained at "elevated" levels even as overall economic growth has been slowing, reflecting in part the slowdown in housing.
Adverse reaction
There was no surprise in the Fed's action. Wall Street had widely expected the Fed would not want to resume rate hikes and risk an adverse reaction in financial markets with just two weeks to go before the congressional elections next month.
The Fed's decision means millions of borrowers will get a break on everything from credit cards to home equity lines to other loans that are tied to the prime rate. The prime will remain at 8.25 percent, where it has been since June, the last time the Fed raised rates.
Analysts saw the Fed's brief statement on Wednesday as confirmation of their belief that the central bank is through raising rates, but at the same time is in no hurry to start cutting rates.
"The Fed is telling us that there will be no change in monetary policy for the foreseeable future," said Mark Zandi, chief economist at Moody's Economy.com.
Lyle Gramley, a former Fed governor who is now an economic consultant in Washington, said the idea of cutting interest rates "isn't on the radar screen at all" because core inflation is running nearly a full percentage point above the Fed's upper level comfort zone of 2 percent.
But on the other hand, "the Fed knows if you were to raise rates now you could turn what is a reasonably orderly decline in housing into a rout and threaten pushing the economy over into a recession," Gramley said.
Federal Reserve Chairman Ben Bernanke earlier this month said that the "substantial correction" going on in housing would shave growth by a full percentage point in the second half of this year.
After beginning the year with a 5.6 percent rate of growth, the US economy slowed to a sluggish 2.6 percent rate in the spring.
Analysts believe that growth in the just-concluded third quarter slowed even further to 2 percent or less. The government will report the actual number today.
Falling energy costs
Nariman Behravesh, chief economist at Global Insight, said he believed the economy, after slowing to a lackluster growth rate of 1.5 percent in the third quarter, will rebound to growth of around 2.5 percent in the final three months of this year as consumers are helped by the recent big declines in the cost of gasoline and other energy products.
That would still be below the economy's long-run trend of around 3 percent, which means unemployment is likely to tick up from the current low for this recovery of 4.6 percent to possibly 4.8 percent by the middle of next year.
But by that time, the sub-par growth will have helped to lower core inflation enough that the Fed will feel comfortable in beginning to cut rates, analysts said, setting the stage for stronger growth next year.
AIR SUPPORT: The Ministry of National Defense thanked the US for the delivery, adding that it was an indicator of the White House’s commitment to the Taiwan Relations Act Deputy Minister of National Defense Po Horng-huei (柏鴻輝) and Representative to the US Alexander Yui on Friday attended a delivery ceremony for the first of Taiwan’s long-awaited 66 F-16C/D Block 70 jets at a Lockheed Martin Corp factory in Greenville, South Carolina. “We are so proud to be the global home of the F-16 and to support Taiwan’s air defense capabilities,” US Representative William Timmons wrote on X, alongside a photograph of Taiwanese and US officials at the event. The F-16C/D Block 70 jets Taiwan ordered have the same capabilities as aircraft that had been upgraded to F-16Vs. The batch of Lockheed Martin
GRIDLOCK: The National Fire Agency’s Special Search and Rescue team is on standby to travel to the countries to help out with the rescue effort A powerful earthquake rocked Myanmar and neighboring Thailand yesterday, killing at least three people in Bangkok and burying dozens when a high-rise building under construction collapsed. Footage shared on social media from Myanmar’s second-largest city showed widespread destruction, raising fears that many were trapped under the rubble or killed. The magnitude 7.7 earthquake, with an epicenter near Mandalay in Myanmar, struck at midday and was followed by a strong magnitude 6.4 aftershock. The extent of death, injury and destruction — especially in Myanmar, which is embroiled in a civil war and where information is tightly controlled at the best of times —
Taiwan was ranked the fourth-safest country in the world with a score of 82.9, trailing only Andorra, the United Arab Emirates and Qatar in Numbeo’s Safety Index by Country report. Taiwan’s score improved by 0.1 points compared with last year’s mid-year report, which had Taiwan fourth with a score of 82.8. However, both scores were lower than in last year’s first review, when Taiwan scored 83.3, and are a long way from when Taiwan was named the second-safest country in the world in 2021, scoring 84.8. Taiwan ranked higher than Singapore in ninth with a score of 77.4 and Japan in 10th with
SECURITY RISK: If there is a conflict between China and Taiwan, ‘there would likely be significant consequences to global economic and security interests,’ it said China remains the top military and cyber threat to the US and continues to make progress on capabilities to seize Taiwan, a report by US intelligence agencies said on Tuesday. The report provides an overview of the “collective insights” of top US intelligence agencies about the security threats to the US posed by foreign nations and criminal organizations. In its Annual Threat Assessment, the agencies divided threats facing the US into two broad categories, “nonstate transnational criminals and terrorists” and “major state actors,” with China, Russia, Iran and North Korea named. Of those countries, “China presents the most comprehensive and robust military threat
RSS