Feds Unlikely To Raise Interest Rates

There is a meeting of the Federal Reserve Board, which will be concluded sometime this afternoon… and is the wont when the fed board meet, the speculation will be whether interest rates will stay put. The conventional wisdom is that the rate will stay where they are, because inflation seemed to be in check. The worries are that deflation will be the focus of Fed Chairman, Bernanke.

Deflation is defined as a decline in general price levels due to a reduction in the supply of money or credit. This sounds familiar and looks so in light of what is actually happening out there. We may enjoy the current rates, which have enabled many of us to purchase homes or lock in our mortgage at unprecedented low rates, but Deflation is just as detrimental to our economy as its polar opposite brother Inflation. The Feds are also worried because of the lack of jobs and the trending of double dip recession in the housing market.

Days ago, the housing stats show that home sales declined, even though that a tax break, which provided incentives to purchase a home, was at its end. This decline in the housing purchase caused the market to worry because it was thought that the housing industry was coming out of its economic doldrums. The import of the housing industry is an important barometer to our economic fortunes because so many jobs are created by it.

We can also see the nexus between housing and jobs: if there are jobs, then the people could afford to purchase homes or pay their existing mortgages. All these factors - jobs, housings sales, inflation, and deflation – are all tied up; for depending on the tandem working together listed above; it will give us clues on whether Inflation or Deflation is on our economic horizons. In the meantime, Bernanke and his Fed boys will be diligently trying to maintain the equilibrium.