kalakuta16445

Pressure on the Federal Reserve to Lower Interest Rates

The housing sector continuing to remain a drag on the economic growth represents a significant risk to the global markets. The credit crunch caused by falling mortgage rates and tightened lending standards has raised dangers in the economic health, affecting borrowers. This made suffering borrowers to pray for key interest rates to go down. The Federal Reserve has not yet sliced the key interest rate in four years, which is now at 5.25%.

There is much buzz on the Federal Reserve to slice down key rates in its next meeting, which will be held on September 18, the gathering would focus on housing markets, which is in deep slump. Some economists predict that the Fed will be forced to lower its key interest rates this year to calm the housing market. If the Fed does not choose to slice down its interest rates, the economic conditions of the world as a whole would further deteriorate and this would cause overall spending and investment market to crumble.

The Federal Reserve is not responsible to protect the lenders and the investors from the consequences of their financial decisions. But, developments in the financial markets can stabilize the global market crunch. The FOMC indicated that the deterioration in the financial market conditions and the tightening of the credit since August 7 has increased. And if this is sustained, the risk would be deeper or would prolonged consequence on the current weakness in housing markets than previously expected.

Lyle Gramley, a former Fed official, now a senior economic adviser at the Stanford Washington Research Group, said the "chances are very high' that the Fed will cut its federal funds rate. This cut would be by one-quarter-percentage point to 5%. He also predicted there would be a further cut of a quarter-point each at the Fed's October and December meetings.

Bernanke the Chairman of The Federal Reserve, on a much awaited speech on Friday told the conference the Fed will act as needed' to protect the health of the national economy from the ill effects of the credit crunch.

The Federal Reserve looks forward to promote general financial objectives to help stabilize the market conditions and ensure the financial markets to function in a systematic manner. In response to that, following of the Federal Open Market Committee (FOMC) meeting held on August 7, the Fed provided reserves to address unusual strains in the money markets.

Therefore, the Federal Reserve Board announced a cut in the discount rate of 50 basic points and adjustments in the Reserve Banks' usual discount window practices to facilitate the provision of term financing for as long as 30 days, renewable by the borrower. The Fed also cut the fee charged for lending Treasury securities. The purpose of these actions was to assure depositories of the ready availability of source of liquidity to safeguard the market scenario.

To safeguard the global market the Federal Reserve would have to continue to monitor the situation and act as needed to limit the adverse effects on the broader economy, which is likely to rise from the disturbances in the financial markets.

Martin Lukac represents RateEmpire.com Refinance Mortgage and Home Equity Mortgage financial marketplace which connects consumers with multiple mortgage companies that compete for their business. For more information please visit Pressure on the Federal Reserve to lower interest rates

posted by cerio71405 @ 9:43 AM 0 comments