Federal Reserve May Not Increase Federal Funds Rate This Year

With the Federal Open Market Committee’s April vote to keep interest rates near zero, some industry experts are saying that it’s unlikely the Federal Reserve will raise interest …

With the Federal Open Market Committee’s April vote to keep interest rates near zero, some industry experts are saying that it’s unlikely the Federal Reserve will raise interest rates this year. While there is a general consensus that the US economy is improving, many believe that claims the recession has ended are premature, and that the Federal Reserve is waiting until there is more obvious, sustainable improvement in the economy before it raises interest rates. See the following article from HousingWire for more on this.

The Federal Reserve is likely to keep its target range for the federal funds rate at zero to 0.25% through the rest of this year, according to commentary by Cambridge Realty Capital Companies, a senior housing and healthcare lender.

The Federal Open Market Committee (FOMC) in April voted to keep rates near zero. The Feds noted economic circumstances are likely to warrant “exceptionally low” rates for an extended period.

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As unemployment is expected to stay high and home values depressed over the next several years, conditions look ripe for exceptionally low interest rates through 2010, Cambrige chairman Jeffrey Davis said in commentary this week (download here).

“Presumably, the Fed will be reluctant to aggressively change course with monetary policy until there is obvious, sustainable improvement in these important indicators, although some tweaking is always possible,” he said.

Davis notes that, while leading US economic indicators appear to have turned up, the panel of economic experts tasked with identifying peaks and troughs in the business cycle call discussion of whether the recession is ended remains “premature.”

According to this panel, the National Bureau of Economic Research (NBER), economic indicators remain “quite preliminary” and could be revised in the months ahead.

“Illusory or not, the consensus view is that some improvement is likely, but we’ll probably not see any irrational exuberance from consumers this year,” Davis said. “From the perspective of senior housing/healthcare borrowers, inflationary threats will at some point push today’s attractive rates off the table, but for now the low rate window remains open.”

He added: “Ideally, this will remain the story as the availability of capital expands opportunities for senior housing/healthcare borrowers in the months ahead.”

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