Interest Rate Chronicles

As you undoubtedly know by now, on 6/24/09, the Fed left the fed fund rate unchanged at a range of zero percent to .25% and hinted that the rate would remain low for "an extended period". They also indicated that "the Committee expects inflation will remain subdued for and extended period". The Fed is obliged to talk inflation down - the very belief that inflation is expected can trigger a rise in prices. Inflation is kept in check currently by slightly negative growth, however, the third and fourth quarters of this year are expected to grow by .5% to 2.0%.

An interesting tidbit - the Fed has never raised rates when the economy has negative job growth. But job losses are slowing, and it is projected that if the job situation continues to improve at the current rate, we could see the unemployment situation stabilized by the end of the year and turn the corner by the first quarter of 2010. In addition, Fed Funds futures indicate that the Fed will begin raising rates in January 2010.

Inflation is in check for now, but as soon as things heat up a bit, it will be difficult for the Feds to drain all the money that they pumped into the economy. There is probably a joke related to "drain" and "Feds" and "money" but it's just not coming to me at the moment!