Hampel: Fed unlikely to change rates before December

MADISON, Wis. (8/6/08)--As expected, Federal Reserve policymakers Tuesday left the target for the fed funds rate unchanged at 2%. That means credit unions should not expect to see another rate adjustment until December and maybe into 2009, said Credit Union National Association Chief Economist Bill Hampel.

"Because economic conditions are unlikely to change much before the Fed's next meeting in mid-September, and the following meeting is the week before the election, the first time we are likely to see a change in the Fed Funds rate will be in December," Hampel told News Now.

"Even then, CUNA's economists expect that by December both economic growth and inflation will have softened enough that the next change in the fed funds rate won't occur until well into 2009," Hampel added.

Tuesday's decision to leave steady the rates, at which banks borrow from each other, was the second consecutive meeting with no change in the target. The decision leaves the rate at the lowest level since late 2004.

"Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee," said the Federal Open Market Committee in a statement following the meeting.

The Fed also noted that job markets have weakened further and the "financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters."

Fed policymakers also took no action Tuesday on the discount rate, at which banks borrow from the Fed, leaving it at 2.25%. Only Dallas Fed President Richard Fisher voted against Wednesday's decision, instead preferring an increase in the target for the fed funds rate.

courtesy of cuna.org