Thursday, 21 September 2006

Fed leaves rates unchanged, BoE may move

The Federal Reserve left interest rates unchanged yesterday. Reuters reports:

The U.S. Federal Reserve on Wednesday held its benchmark interest rate steady for a second straight meeting, saying that while inflation risks remain, they should abate as economic growth slows.

The Federal Open Market Committee's decision to hold the overnight federal funds rate target at 5.25 percent -- the level hit in June after 17 straight increases -- was widely expected.

Economist's View covers the decision, Mark Thoma analysing the press statement which left Tim Duy unsatisfied.

Meanwhile, the Bank of England released the minutes of its last policy meeting yesterday. Again Reuters has the report.

All eight members of the Bank of England's Monetary Policy Committee voted to keep interest rates steady at 4.75 percent this month, but policymaker David Blanchflower suggested he may want a cut in due course.

Minutes of the Sept 6-7 meeting published on Wednesday showed that MPC members thought the economy was performing in line with forecasts issued in August but were concerned that higher inflation expectations could boost pay demands.

The next move still looks more likely to be a rate hike rather than a cut, though, after the latest figures on mortgage lending.

Underlying mortgage lending rose by a record amount in August, British Bankers' Association data showed on Wednesday, in another sign the Bank of England's surprise rate hike last month has not deterred house buyers.

Net mortgage lending rose by 6.2 billion pounds, up from a 5.8 billion increase in July and well above the monthly average rise of 5.4 billion over the previous six months...

On the consumer side, the BBA said underlying credit card lending fell by 399 million pounds in August compared with a fall of 77 million in July and an average monthly drop of 143 million over the previous six months.

But while the world watches central banks, William Polley warns that we are just "[o]ne nasty little shock away from recession". He cited the military coup in Thailand as an example, with Asian stock markets mostly lower yesterday on the news, although markets elsewhere largely ignored it.

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