Low Rates for Now, But Guessing Game Begins for June

Financial marketsThe Federal Reserve is not budging from its “extended period” pledge for a near-zero key interest rate, but some economic indicators are picking up steam and that should be enough to fuel speculation before its next policy-setting meeting June 22-23.
The primary downward economic factors continue to be unemployment and depressed bank lending – countered by upticks in consumer spending and housing starts.
Economy activity has strengthened and the labor market is “beginning to improve,” the Fed said after its Federal Open Market Committee meeting ended yesterday.
The Fed maintained its 0-.25 percent federal funds rate intact. It has been at its historic low since December 2008.
“Growth in household spending has picked up recently but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit,” a Fed statement said.
Lending continues to contract, the Fed said, but the financial markets continue to respond positively to economic indicators.
The bull market in equities is in its 14 month, with the Dow closing above 11,000 yesterday.
Moreover, Fed officials have indicated that debt troubles in Greece and other euro zone nations have not affected the U.S. economy.
The Fed is also not worried about inflation yet. One of the worrisome factors for market speculators is the specter of higher prices forcing the hand of the 10-member FOMC in raising rates.
“With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time,” the Fed’s most recent statement said.

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