The Federal Open Market Committee is in the middle of a two-day meeting, but interest rates aren’t expected to budge. The FOMC, part of the Federal Reserve, will announce at the end of its meeting Wednesday any decision regarding interest rates changes and its general economic outlook.
The target federal funds rate, which the Fed controls, has stayed between 0 and 0.25% for 16 months, and some economists believe a higher rate could come in the near future, given the economy’s slow recovery from the recession. If the organization provides an optimistic assessment of the economy when the meeting wraps up on Wednesday, it could mean rates are due to rise soon.
A Few Reasons For Optimism
After a steep downturn that included growing unemployment rates and widespread mortgage defaults, the U.S. economy is showing some signs of life.
American manufacturers produced more in March than they did in February, according to the Institute of Supply Management. Businesses ordered more new goods and retailers sold more to consumers. April’s housing market has improved compared to that of March, and the economy added 162,000 jobs in March.
Fed Chairman Ben Bernanke, who spoke Tuesday at the National Commission on Fiscal Responsibility and Reform, cautioned that the nation faced long-term challenges. But he also discussed a potential “path to fiscal sustainability.”
According to analysts David Song and Michael Wright of DailyFX, the Fed could be poised to raise the target federal funds rate as soon as later this year.
“An upward revision in the central bank’s economic assessment may lead investors to raise expectations for a rate hike in the second half of the year as policy-makers hold an improved outlook for growth and inflation,” Song and Wright reported.
Fed Funds Rate Probably Set For Now
The recovery may not be occurring rapidly enough to warrant a rate change at this point. If the federal funds rate stays put once more, it will be the rate’s 16th consecutive month between 0 and 0.25%. The last major rate freeze came in 2006 and 2007 when the rate stayed at 5.25% for 15 months, according to Fox Business.
The FOMC’s opinion could hinge on what it thinks of the housing market. The housing market has done well of late, but the growth could be attributed to the upcoming April 30 expiration of a homebuyers credit. The credit, offered by President Barack Obama, gave many homebuyers incentive to purchase houses in early 2010. Bernanke spoke more about the economy’s struggles than he did about its successes:
“Even after economic and financial conditions have returned to normal, in the absence of further policy actions, the federal budget appears set to remain on an unsustainable path,” Bernanke said. “A variety of projections…show a structural budget gap that is both large relative to the size of the economy and increasing over time.”
Check back Wednesday with MyBankTracker.com for an update on the FMOC’s statement and economic forecast.