Financial analysts who were hoping for some downward movement on interest rates by the Federal Reserve were disappointed as Ben Bernanke and his merry band unanimously voted to do nothing.
Following what is now a familiar and conservative wait-and-see strategy towards the nation’s economy, and reactionary as usual, Bernanke and the Federal Open Market Committee left their short-term federal funds rate at 2 percent.
Later in the day the Fed made what had to be a highly anticipated move by the nation’s financial gurus, deciding to bailout AIG at the 11th hour before the world’s largest insurance company went bankrupt.
As for its decision on interest rates, in its official statement the FOMC justified its position, stating, “Strains in financial markets have increased significantly and labor markets have weakened further. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters.”
The New York Times commented that the decision to keep the key rate where it is clearly demonstrates the Fed’s limited ability to solve a problem involving the nation’s housing and mortgage markets.
However, with concerns of inflation mounting, Stuart Hoffman, chief economist at PNC Financial Services Group told Investor Business Daily Tuesday that rate cuts are back on the table, especially if economic growth continues to slow down in the fourth quarter of the year.
Remarking on the Fed’s rescue of AIG, the Los Angeles Times commented that it seems to be an “abrupt about-face” in position considering that the Fed did not bail out Lehman Brothers as it filed for bankruptcy protection (after having bailed out Bear Stearns earlier this year).
All of this rocking the boat may be making the nation’s financial markets a little queasy as the Fed decides which side its bread is buttered on. But it can’t be very settling for the nation’s homeowners either, as many more continue to face foreclosure in the coming months until a bottom of the market is clearly defined.
In the meantime, thanks to the waffling by the Fed, foreclosure is going to continue to be a dominant factor in the marketplace for the foreseeable future. Good news for wannabe homeowners looking for discounted properties, and a great time to be a real estate investor in most parts of the country.