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Interest Rate Hike Is a Likelihood
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LOS ANGELES -- The Fed has made it clear that battling inflationary increases is
the reason officials get up and go to work every day. Energy prices and other
important pricing in our economy are rising. Henceforth we can expect
policy makers to continue elevation of interest rates.
There is a scheduled Fed meeting this week on Tuesday. At this time they can be
expected to bump the federal funds rate by one-quarter of a percentage point.
This will bring the tally to 3 percent. Since June of last year it will be the
eighth increase. It was last June when the central bank began a campaign to
tighten the cinch on credit overall nationally.
We all know that inflation is going upward. However, our economy has indicated
clearly that we are in a rough state. As such, Fed Chairman Alan Greenspan have
some decisions to make which are quite sensitive. There is a tightrope walk
about to begin which teeters between economic growth and inflation.
In order to keep a leash on inflation the Fed must continue
mortgage rate
elevations while at the same time balancing this with a struggle to keep the
economy growing. A tough job for the fellows at the Fed office in Washington,
D.C.
It seems like a down side for homeowners, but the truth is that higher
mortgage
rates are a solid line of defense against unhealthy inflation. The catch-22 is
that when it is more expensive to borrow consumers and businesses alike are not
inclined to spend or invest their monies.
The first quarter of 2005 showed statistically that our economic state grew at a
3.1 percent annual rate. This clearly represents the lousiest performance
overall during the past 24 months. Swelling energy prices are the culprit,
according to analysts. There are many who believe that economic growth between
April and June could prove to be worse.
A measurement of the current eco-climate may not energize the labor market.
There is evidence of this trend in the fact that a mere 110,000 jobs were logged
as additions in March. That is the least amount of employment additions in the
past eight months. As far as April is concerned, we will not know until the
employment report is released on Friday. The prediction by economists, however,
is that 170,000 jobs were created.
Gasoline prices continuing to swell as well as other energy products forced
consumer prices to bounce upwardly by 0.6 percent in March, the largest increase
we have experienced since last October.
The bottom line is that the majority of authoritative economists uniformly agree
that the Fed will likely increase interest rates throughout the remainder of
2005, just as they have promised. There are others, however, who insist the Fed
will stifle increases for a pocket of time during our summer months.
What it all means to homeowners:
If the Fed bumps
rates by a quarter of a percentage point in interest banks
charge one another on overnight loans then expect our prime lending rate at
commercial banks to rise to 6 percent.
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