The Debate of the Future: The Interest Rates in the United States

Officials of the U.S. Federal Reserve (Fed) made ​​the decision to continue to cut the massive bond buying program.
But it seems that in the future the Fed will have to make a difficult decision: choose when to raise interest rates. The Fed President Janet Yellen pointed out that there are three “big” issues that officials should discuss;
  • The state of the labor market
  • Compliance with the inflation target of 2%
  • Factors that could threaten the economic recovery.

Some analysts are already starting to see a rise in interest rates in 2015 if economic conditions are thin.

Yellen and colleagues will discuss what kind of economic conditions define the stage for a rise in interest rates. It is necessary that the Fed clearly discuss on this topic in order to more accurately anticipate when it will happen.

Much of the debate about the rise in interest rates depends on the objective of reducing the balance sheet before or after acting to increase the cost of the loan and whether it should respond to the possibility of asset bubbles in some markets.

The natural experience after reppeated bubbles is that the interest rate increase should be performed before any asset explodes.

Fed officials, who will meet on Tuesday and Wednesday, have major disagreements about the answers to these issues and, consequently, on the best long-term plan to raise interest rates.

However the body is not under pressure, as economic indicators respond in a controlled manner. That’s why members of the Fed have no need to quickly change its monetary policy, and also have time for discussion.

Economic data favor the recovery

Everyone knows that the economic slowdown that occurred earlier this year was the result of the harsh winter.

Furthermore, the low yields of Treasuries and high prices of stocks since the Fed began cutting in January its asset purchases, the market appears strong.

The new bond purchases cut would lower the cost to 45,000 million and would put the Fed midway of its plan to end their quantitative easing program later this year.

Most Fed officials said they are committed to keep rates near zero for a “considerable time” after finishing the bond purchases.

But there are some concerns and certain officials have said that is necessary to announce more specifically about the time that interest rates would rise.

For now, investors should not worry too much, but it is important to pay attention to signs that could indicate a rate hike in interest rates. An event of such magnitude could impact whole market and investment decisions.

Real Estate Market sees the light

The number of contracts to buy previously owned homes in the U.S. rose in March for the first time in nine months.

This could be the sign that the housing market may be stabilizing. after suffering a setback by rising interest rates and a severe winter.
The National Association of Realtors (NAR) said on Monday that its index of pending home sales, based on contracts signed last month, rose 3.4 percent to 97.4. Economists expected a 1.0 percent advance.

These contracts convert to sales after a month or two, and the rise in March suggests that home resales could rebound in coming months.

Sales took a hit earlier this year after the Federal Reserve signaled that it may soon reduce its economic stimulus, pushing up interest rates.

The grueling winter also avoid that buyers come to the houses, which had an impact on sales.

Sales of existing homes fell in March to the lowest level in more than a year and a half but details of the report suggested that the downward trend in sales is probably exhausted now that inventories of homes grow and first-time homebuyers come to market.

Despite the increase last month, pending home sales fell 7.9 percent compared to March last year.

Thus we see that the sector hardest hit in the U.S. economy continues to recover, and the rest of the indicators are moving in line with that expected by the Fed.

The economic outlook is quiet and investment in this context are quieter, although there are opportunities in the markets. See you next week on a new market summary. Until next time.


Leave a Comment