Today the Federal Reserve voted again to keep interest rates the central bank charges commercial banks at a record low, prompting investors and analysts alike to question whether or not the FED is actually concerned with monetary policy. The move, which keeps rates at 0-.25% is the lowest ever, and many believe we may see the longest time in history that rates have been kept at 1% or below.The Federal Reserve rate is paramount to any economic recovery.
The domestic economy which derives 70% of its productivity from consumption needs low rates to generate demand for consumer products. A 0-.25% rate means that prime rates sit at roughly 3.5%, low enough for most consumers to spend money on virtually everything.
The only problem is that for the most part, few have been willing to spend. An economy so dependent on consumption needs strong spending to fuel job creation and even more spending. The endless cycle of wealth has seemingly come to a standstill with few willing to act, and even fewer willing to speculate with business expansion. No jobs = No Money, No Money = No Jobs.
Although the Federal Reserve failed to act in this 9-1 vote, many expect the FED will have to raise rates this summer in response to higher energy prices and general inflation. Since US energy demand is largely displaced by foreign producers, higher oil prices mean a widening trade deficit and even more fiscal problems for a country already fighting to stay even.
Also, since nearly every good and service requires transportation in at least one stage of production, higher energy prices mean higher prices for virtually every product, domestic or imported.
