Fed Holds Rates Steady After Meeting

The Federal Reserve decided on Thursday to hold interest rates steady.

In its regular Federal Open Market Committee meeting, the Fed decided to hold the federal funds interest rate at 5.25 percent, where the rate has been for a year. Most economists had been expecting the Fed to hold, although more are now predicting movement by the Fed either up or down.

The economic climate for receivables management is not altered when the Fed holds rates steady, according to Kaulkin Ginsberg Co. Director Paul Legrady.  But be prepared if rates rise, he says. “If the Fed starts to raise interest rates again, it will obviously increase payments on adjustable-rate mortgages.  This will put added pressure on the consumer and make recoveries more difficult,” said Legrady.

Economists are split on whether the Fed will raise or lower rates later in the year.  One camp believes that rates will need to be lowered to spur economic growth in a weakening business environment.  The economy grew at only a 0.7 percent rate in the first quarter of this year.  Also, the Fed will need to lower rates to bolster the floundering housing market.  The other side of the raise-or-lower coin says that the Fed will be forced to raise rates later in the year as inflationary pressure mount.

The Fed announced yesterday that inflation was still at the top of its mind. It predicted that economic growth will pick up this year, but that the inflation picture will look bleaker.

The federal funds rate is the rate at which banks lend each other money overnight.  Generally, it determines the price – or interest rate – banks charge to consumers for credit products.  The Fed uses the rate to not only stimulate economic growth, but to also fight inflation.  The rate has stood at 5.25 percent for a year now after the Fed went on an unprecedented run of 17-straight quarter-point increases the previous few years to raise interest rates from all-time lows in the early part of this decade.