According to a recent news story in Associated Press, It is highly unlikely that Federal Reserve Bank will change the key interest rates any time soon. Since the interest rates are currently at historic low for some time now and practically this is as low as Fed can keep them to kick start the jammed US economy. Despite the faint signs of improvement in economic activity, Fed is not likely to touch the rates at least not for next two quarters.
After spending more than a year in deep recession, US economy finally started to grow in the last quarter. The rate of growth is very minimal and no one knows if the growth can sustain itself over next few quarters or not. So far the economy is running on essential life support system provided by federal government. It is yet to be seen how it performs without oxygen mask.
The Core policy making team at Federal Reserve Bank of America resumed its meeting on Wednesday morning. They are likely to discuss and analyze available economic and financial data over the period of next two days. 
Although their is some data that indicates the recovery but still the rising un-employment and non-availability of easy credit to individuals and small business owners are some of the factors that are putting a drag on faster recovery from recession. Commercial and residential real estate markets have yet to coup with the impact from loans that went bad and took along them many a banks.
Mortgage rates are still very high. In September, when the key policy makers of Fed met, the team outlined a very pragmatic plan to bring the mortgage rates down for the main street consumers and try to kick start the housing sector. It is very likely that we will see some positive movement in the same direction at end of current meeting.
Since the inflationary effect of recent stimulus packages is almost none, Fed might try to take some drastic measures to keep Prime Mortgage Rates at or around 3.25 percent. These measures, that would seem stupid if seen out of context, include pushing the target rate for it bank lending further down and keep it between zero percent and 0.25 percent. This will impact all aspects of economy as the commercial bank’s prime lending rate is used as a yard stick to determine interest rates for home equity loans, credit cards and other types of consumer finance products.
Hopefully, the impact of this will reach and felt by small business owners and individuals and they will have access to funds required to make essential investments that in turn will kick start the economy back to boom once again.
Since Governments and central banks all over the world are looking for exit strategies from the current “Hands On” manipulation of financial and banking systems. US Fed is also likely to think about their own exit strategy. Some analysts including me, have serious reservations about any such attempt at this point because if you take away the fiscal and monetary support out, there is a big chance that economy will take another dip back into recession. Govt. and Fed should keep doing what they are doing to help and stimulate economy as this is only way out of this mess.
Currently the un-employment rate is near 10 percent (9.8% to be exact). This is the highest this generation has ever seen… last time it touched 9.8 was 26 years ago. Any increase in interest rate will likely to increase the cost of borrowing and companies all around US are looking for ways to cut costs. The increase in cost of borrowing will not help in tackling un-employment. Furthermore if we can’t bring down un-employment rate to 5 – 6 percent, there is not recovery possible… so basically it is a vicious spiral.
While all the key policy makers are agreed upon keeping the rates at current levels, Intense debate is expected over final shape of stimulus plan for housing market. Fed initially agreed to buy $1.25 trillion worth of mortgage securities from Fannie Mae and Freddie Mac, It has so far been very slow in doing so. Till date total money spent on these securities is only $776 billion. It also failed to achieve its target of purchasing other sour debts from these companies.
Still these efforts helped in keeping mortgage rates low. currently 30-year fixed rate mortgage goes for about 5.03 percent. last year it was 6.64 percent.
Fed is also likely to move swiftly on reckless gambling by banks in financial markets. It will also try to curb huge bonuses and mind boggling salaries for executives of big banks. Let’s keep our fingers crossed when the Fed Chairman speaks next.
