Tag Archives: Interest Rates

Business, Finance, Occupation & Industry

Investors Eye Fed for Further Clues on Interest Rates

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By The Associated Press

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Manuel Balce Ceneta/APFederal Reserve Chairman Ben Bernanke

By MARTIN CRUTSINGER

WASHINGTON — When the Federal Reserve offers its latest word on interest rates this week, few think it will telegraph the one thing investors have been most eager to know: When it will slow its bond purchases, which have kept long-term borrowing rates low.

The Fed might choose to clarify a separate issue: When it may raise its key short-term rate. The Fed has kept that rate near zero since 2008. It’s said it plans to keep it there at least as long as unemployment remains above 6.5 percent and the inflation outlook below 2.5 percent.

Unemployment is now 7.6 percent; the inflation rate is roughly 1 percent.

Chairman Ben Bernanke has stressed that the Fed could decide to keep its short-term rate ultra-low even after unemployment reaches 6.5 percent. Testifying to Congress this month, Bernanke noted that a key reason unemployment has declined is that many Americans have stopped looking for jobs. When people stop looking for work, they’re no longer counted as unemployed.

If that trend continues, Bernanke said that lower unemployment could mask a still-weak job market and that the Fed might feel short-term rates should stay at record lows.

In the statement the Fed will issue when its two-day meeting ends Wednesday, it could specify an unemployment rate below 6.5 percent that would be needed before it might raise its benchmark short-term rate. It might also say that it won’t raise that rate if inflation fell below a specific level.

Investors would react to any such shift in the Fed’s guidance. Financial markets have been pivoting for months on speculation that the Fed will or won’t soon slow its $85-billion-a-month in Treasury and mortgage bond purchases. Those purchases have led more consumers and businesses to borrow, fueled a stock rally and supported an economy slowed by tax increases and federal spending cuts.

The Fed has signaled that it might slow its bond buying as soon as September — if the economy has strengthened as much as the Fed has forecast. If not, the Fed would likely maintain its stimulus.

On Wednesday, the government will report how fast the economy grew in the April-June quarter. Most economists predict an annual rate of barely 1 percent — far too weak to quickly reduce unemployment. Most think the growth is picking up in the second half of the year on the strength of a resurgent housing market, stronger auto sales, steady job gains and higher pay.

Many economists think the key goal of the Fed’s policy discussions Tuesday and Wednesday will be to stress that the Fed’s actions in coming months will hinge on how the economy fares, not on any timetable.

Some economists think the Fed will be mindful …read more

Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Three Simple Steps: Managing Debt

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By Dan Caplinger

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Being in debt can be one of the most overwhelming financial challenges you’ll ever face. That’s one reason that Americans have worked so hard to break themselves of their debt habit, with the Federal Reserve Bank of New York having reported recently that debt levels have fallen by $1.45 trillion since the third quarter of 2008. In particular, credit-card debt is down more than 20 percent over that time frame, reflecting the priority of getting high-interest-rate debt paid down fastest.

Even if you have a lot of debt, don’t panic! You can get your outstanding loans under control if you take a long-term view and start taking baby steps toward better managing your debt. Start out with these three simple tips:

1. Order your credit report from AnnualCreditReport.com, which is the free website set up under federal law to provide copies of credit reports to all Americans. You can get one free report every year from each of the three main credit-reporting agencies, and the report will tell you what loans and cards you have outstanding, how much you owe, and your payment history, including any late payments or delinquent accounts.

2. Gather up your loan and credit-card statements to match them up with your credit report. If you see extra entries on your credit report that aren’t among the bills you’re paying every month, flag those unknown accounts for future follow-up to avoid potentially nastier surprises further down the road.

3. Figure out the interest rates you’re paying on each of your loans and cards. Usually, that information will be right on the loan statement, and doing so will give you a good idea of how to prioritize which debt to pay off first. Moreover, it’ll give you ammunition in negotiating better interest rates down the road.

Debt can be a huge burden, but managing your debt doesn’t have to be. Instead of freaking out or hoping that your credit-card balances will just magically go away, taking these simple first steps will get you on the road toward dealing with your debt once and for all.

You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger or on Google+.

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Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Fed Seen Maintaining Stance on Record Low Interest Rates

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By The Associated Press

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Richard Drew/AP Federal Reserve Chairman Ben Bernanke is seen on a monitor on the floor of the New York Stock Exchange on Tuesday, the same day Bernanke told Congress maintaining low interest is necessary in an economy is still burdened by high unemployment.

By MARTIN CRUTSINGER

WASHINGTON — The Federal Reserve on Wednesday is expected to maintain its resolve to keep borrowing costs at record lows despite growing signs that the economy is strengthening.

The Fed will end a two-day meeting with a policy statement and updated economic forecasts. Afterward, Chairman Ben Bernanke will hold a news conference. Most analysts think policymakers will acknowledge the economy’s improvements but leave the Fed’s stimulative policies unchanged.

Bernanke has said in recent weeks that the job market, in particular, has a long way to go to full health and still needs the Fed’s extraordinary support.

The unemployment rate, at 7.7 percent, remains well above the 5 percent to 6 percent range associated with a healthy economy. The Fed has said it plans to keep short-term rates at record lows at least until unemployment falls to 6.5 percent, as long as the inflation outlook remains mild. And it foresees unemployment staying above 6.5 percent until at least the end of 2015.

Economists think Bernanke will take note of the economy’s gains. But most foresee no pullback in the Fed’s strategy of keeping short-term rates at record lows and of buying $85 billion a month in Treasurys and mortgage bonds to keep long-term loan rates down.

“Even though the economy has improved, it has not improved enough to switch course,” says Diane Swonk, chief economist Mesirow Financial. “We don’t have unemployment low enough yet.”

The economy slowed to an annual growth rate of just 0.1 percent in the October-December quarter, a near-stall that was due mainly to temporary factors that have largely faded. Economists think growth has rebounded in the January-March quarter to an annual rate around 2 percent or more. The most recent data support that view.

Americans spent more at retailers in February despite higher Social Security taxes that shrank most workers’ paychecks. Manufacturing gained solidly in February. And employers have gone on a four-month hiring spree, adding an average of 205,000 jobs a month. In February, the unemployment rate, though still high, reached its lowest point in more than four years.

The brighter news has prompted speculation that the Fed might be preparing to dial back its easy-money policies. Such thinking has been fed by concerns voiced by a few Fed regional bank presidents about the low-rate policies.

Inflation Fears

These include fears that the Fed has pumped so much money into the economy that it could eventually ignite inflation, fuel speculative asset bubbles or destabilize markets once the Fed has to start raising rates or …read more
Source: FULL ARTICLE at DailyFinance

News, Politics, Government

What Should Everyone Know About Economics?

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By Quora, Contributor

Here are the top 10 things you need to know in economics: Economics has  two main streams – Microeconomics and Macroeconomics. Micro deals with customer behavior, incentives, pricing, margins, etc. Macro deals with  broad economies and larger things such as interest rates, Gross Domestic  Product (GDP), and other  stuff you see in the business column of a  newspaper. Micro is more useful for the managers and macro is more used  by investors. Except for points 2 & 3, I will cover macroeconomics  in other points. Laws of Supply & Demand: This is  the founding block of economics. Whenever supply of something increases  its price decreases and whenever demand increases price increases. Thus, when you have excess production of corn, food prices decrease and vice versa. Think of this intuitively. You will find its applications in thousands of places. Marginal Utility:Whenever you have  more of something its use for you diminishes. Thus, a $100 would be more  valuable when you earn $1000/month than when you earn $1 million/month. This is widely used in setting up prices.   Gross Domestic Product (GDP): This  is the fundamental measure of the size of an economy. This is  conceptually equal to the sum of incomes of all people in the country or  sum of the market value of all goods & services produced in that  country. Right now, the US is the biggest economy in terms of GDP at around  $14 trillion. That means $14 trillion of value is produced in the US  every year. Growth rate: The growth of an economy is  commonly measured in terms of GDP growth rate. Since GDP is a measure of  national income, this growth rate is a rough proxy for how an average  person’s income grows every year. Inflation: You  already know that the price of most products now are higher than in your  grandfather’s time. Inflation (measured in percent) is measure of how  much a bunch of products have increased in price from last year. In  mature economies, annual inflation is around 2% – that means on an  average the prices of stuff goes up by 2% every year. The fundamental  role of central banks is to manage this rate and keep it to a low  positive number. Here are  the 100 year inflation numbers in the US.   Interest Rates: When you loan money to somebody, you expect something extra in return. This  excess is called the interest. Interest rate is a positive number that  measures how much excess you will get. There are bunch of rates here. In  the short term, this rate is usually set by the Central Banks. Right now it is close to zero. In the long term, this is set by the market and is dependent on inflation and the long term prospects of the economy. The mechanisms in which the central banks control the short term rates  is called monetary policy. Interest Rates vs. Inflation vs. growth: There  almost an inverse relationship between interest rates & growth and  interest rates also …read more
Source: FULL ARTICLE at Forbes Latest