The Federal Reserve has announced that US interest rates are to be held at 2%, amidst continuing worries in the housing market and consumer confidence allegedly at its lowest level in 16 years.
The move was an expected one, with analysts stating that the Federal Reserve is facing a balancing act, as it copes with rising prices and economy slowdown. A recent survey has suggested that house prices were significantly lower in April, compared to the same time last year.
Ben Bernanke, the head of the Federal Bank today signalled that concerns about inflation and a slight recovery of the economic markets make it unlikely for more rate cuts.
He said that over the past few months, the government’s stimulus package and a succession of rate cuts would provide better economic conditions.
The Federal Reserve’s statement sent crude oil $3 lower, while the dollar was close to reaching a three month high.
The Federal Reserve has auctioned more than $7bn in securities, which it hopes that it will boost the credit markets.
The Federal Reserve last year started a succession of auctions to help shore up liquidity after the credit crunch. The central bank is hoping to stop the housing slowdown from turning into wider recession.
In exchange for the securities, investment firms can obtain a short-term cash loan by trading it with their more risky investments, including mortgage backed risks.
Since the start of 2008 the US has seen an economic slowdown in all regions and market areas including housing and retail. The cost of building materials and higher energy prices are responsible as of course is the credit crunch.
In an attempt to save the economy the Bank of England looks set in offering lenders £11.4bn in funds.
This will of course lessen the credit crunch which has turned global.The focus is to help lending between commercial banks and retail which has risen in the last few weeks.
This follows a similar tact from the US federal reserve who through auction made 20 billion US dollars available.
Credit problems cannot be solved overnight but these measures may well help. Despite interest rates being cut in the UK and US lending rates have remained high.