Interest Rates Hold Steady

[Aug 17, 2007.]

Interest rates are remaining the same, amid continuing concerns at the Federal Reserve over inflation.

The Fed recently voted to maintain the federal funds rate at 5.25%. The figure refers to the rate that banks charge one another. The decision came despite the fact that the stock market has been volatile lately because of the increase in defaults on subprime mortgages. In its official statement, the Fed admitted that economic problems had "increased somewhat," while noting that the major concern continues to be inflation.

Observers forecast that interest rates will remain steady throughout the year, as the Fed continues to monitor the inflation rate.

The Fed's latest decision on interest rates represents the 9th consecutive time that the Fed has decided to leave rates the same. The last hike - a quarter-point rise - was put into effect in the summer of last year.

Because of the Fed decision, the prime lending rate will stay at 8.25%. It's been at that rate for a year now. The prime lending rate is the key rate for many consumer and business loans.

It's now believed that it will be well into next year before the Fed will make a change in the interest rates. Coincidentally, forecasters have predicted that the national housing crisis will not abate until sometime in 2008. While the current housing slump does have ripple effects throughout the economy, the impact has not been quite as bad as was first predicted.

Interestingly enough, there are indications that the President's approval ratings are going up. The vote of confidence could be an indication that consumers are happier with the economy than had been forecasted. Consumers typically tend to hold the nation's Chief Executive responsible for both downturns and upturns in the national economy. Still, it's unclear how much of a role the economy will play in the 2008 Presidential election.

Julie Ann Amos
August 17th 2007

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