FOMC leaves rates unchanged, economic news sends mixed signals
April 29, 2009 by admin
The FOMC announced on Wednesday that they would be leaving key rates unchanged. The Fed funds and fed discount rates would remain at 0% and .25% respectively. This is good news for consumers that have loans that are directly tied into the prime rate, as these rates should remain unchanged and near historic low levels. The FOMC believes that the overall economy is making some improvements, but certainly there are a number of variables that still are in play and they will need more time to review key future economic reports such as (jobs, cpi, consumer confidence, housing, and gdp).
The FOMC has leveraged almost all of its monetary ammunition over the past year working to lower rates to near zero, and commiting billions of dollars to mortgage backed loan securities. This move was instrumental in helping to bring mortgage rates to historic low levels and spur a mortgage refinance surge that has helped homeowners (who qualify) lock into lower fixed rate mortgage loants. The FOMC has indicated they will take all necessary measures to help keep the economy moving forward, but their options are more limited because of their previous moves. The current state of the economy has many economists believing that there will be a recovery towards 2010, but we are several quarters of news and economic data to confirm this belief.
The GDP report released today showed significant contraction in the economy. The contraction of GDP by over six percent, was greatly influenced by the fallout of investment income and the stock market decline. The dramatic drop in GDP follows a fourth quarter decline of six percent and the twelve percent decline marks the steepest fall in GDP since the 1950′s. Negative GDP is the major economic report that economists turn to when they indicate and economy is officially in a recession.
Most economists who digested todays economic reports believe that the negative headline report of the contraction rate, actually overshadowed a number of positive parts of the GDP report including (spending on durable goods & consumer spending). The return of growth in GDP may not occur until 2010, but many economists believe that the worst is behind the economy for contraction.
The FOMC will likely begin to examine the housing sales and jobs reports as the two major economic reports before making their next FOMC decision in June. The emphasis by the FOMC and the government to stabalize housing prices and encourage home buying will be critical in moving the economy out of its downward spiral and any improvement with housing will be a signifant jolt to consumer confidence.