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Fed leaving benchmark funds rate near zero

Mitchell Hartman Jun 24, 2010
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Fed leaving benchmark funds rate near zero

Mitchell Hartman Jun 24, 2010
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TEXT OF INTERVIEW

Bill Radke: Yesterday, the Federal Reserve it’s not changing its benchmark interest rate. That Federal funds rate is used for short-term loans that banks make to each other — it helps determine rates like the ones you pay for your home loan, your car loan. That rate’s going to stay near zero for a quote “extended period.” More newsworthy was what the Fed’s policymakers said about the economy. Marketplace’s Mitchell Hartman joins us live. Hi, Mitchell.

Mitchell Hartman: Good morning, Bill.

Radke: It’s always tricky to parse the Fed’s statements, but hat can we glean from their latest words?

Hartman: Well investors read these words very carefully to try to figure out where the economy is doing and what it’s likely to do about it. There a few key phrases to try to decipher. First off, on the economic recovery, the Fed said it’s quote “proceeding.” That’s a bit more tepid than the last time the Fed met, which was in April. They declared that the recovery at that point hads “continued to strengthen.”

Radke: OK, that’s not the same, though, as saying the recovery has stalled.

Hartman: No, no it’s not, and the Fed and most economists don’t think that’s happening. But the Fed is more cautious about the outlook than a few months ago, no doubt about it. So it said consumer spending is still “increasing” but “remains constrained.” The job market is improving but only “gradually”, and housing is just “depressed.”

Radke: And what do the policymakers say about Europe? We’ve been reporting on how that, you know, the European debt is freaking out the markets. What did the Fed say?

Hartman: Well this time, the Fed cited these problems, saying developments abroad are quote “less supportive of economic growth.” Jan Randolph follows sovereign debt at IHS Global Insight in London:

Jan Randolph: We know the U.S. economy is the largest in the world, but the European Union taken together is about equivalent size, roughly $14 trillion worth of GDP. So a very important consumption block part of the global economy. And Europe has problems that’s likely to have an impact elsewhere.

And so in terms of the financial system, you know European banks are shaky, that affects the whole global borrowing and lending system. And in terms of importing U.S. goods, we’re likely to sell less to Europe now.

Radke: Marketplace’s Mitchell Hartman. Mitchell, thanks.

Hartman: You’re welcome.

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