Interest Rates: What Will He Do?
A: The Fed is set to meet early next week (meeting is March 27-28th), and make their move on monetary policy once again. I am extremely certain that we will have another 1/4 point rate which would bring the fed funds rate, the overnight bank lending rate controlled by the Fed, to 4.75%. By the way, obviously the above resume is out dated as Ben Bernanke is currently serving as the new Fed Chairman.
I discussed a few weeks ago, "Interest Rates Could Go Higher", that I was about 95 - 5 in favor of a 15th consecutive 1/4 point rate hike at this upcoming fed meeting.
According to this new CNN Money article:
According to futures contracts on the Chicago Board of Trade, investors are pricing in a 100 percent chance of getting at least a quarter-percentage point rate increase at the March 27-28 meeting.
What To Look Out For: Forget the rate hike of 1/4 point, that we all pretty much know is coming. Instead, focus on the statement that the Fed will release with the monetary policy move. We already know that in the last statement the Fed removed the "measured" keyword indicating that the rate hike campaign was nearing its end and that future moves would be more strongly related to future economic data. I will be looking for any clues that might indicate an end to interest rate hikes sooner rather than later.
What To Expect: 1/4 Point Rate Increase
Affect On Housing: A 1/4 point rate hike shouldn't have a huge impact on current lending rates. It normally takes a few weeks for a rate hike to funnel down into the loan rates that you see, so expect a small uptick in lending rates by the middle of April or so. Should the released statement indicate more rate hikes to come, you will probably see a more aggresive reaction by the bond markets which would push rates higher than expected. But I don't expect any surprises in the statement.
UrbanDigs Says: New Fed Chief Bernanke is NOT going to want to mess around with the street and markets by releasing a tricky or unclear statement at this meeting. I think he will be clear and continue what Greenspan started in setting the tone for the next meeting. Most economists are anticipating a 2nd rate hike at the May 10th meeting while others are predicting 3-4 more rate hikes which would bring the fed funds rate closer to 5.5% when all is set and done. I do not see that happening. I think Bernanke is going to be more cautious with monetary policy considering the delicate situation we are in right now with still high energy levels, political instability in oil rich nations, dwindling public opinion on the war in Iraq, a cooling housing market, a fast growing deficit, and a strong economy.
~ Fed Meeting: All Eyes on the New Guy
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