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Thursday, May 05, 2005

Interest Rates: The Long and the Short of It.

This little article is of interest as it draws attention to one issue which is often underplayed: the Federal Reserve (or the ECB for that matter) only controls short-term rates. Longer term rates, which are also pretty important for the economy, are not so easy to influence (although of course, as Bernanke has often indicated, the Fed has the authority to intervene all along the yield curve).

Rates on 30-year mortgages fell for a fifth consecutive week even as the Federal Reserve was boosting short-term rates. Mortgage giant Freddie Mac reported Thursday in its weekly survey that rates on 30-year, fixed-rate mortgages averaged 5.75 percent this week, down from 5.78 percent last week.

The decline pushed the 30-year rate down by more than a quarter-point from the 6.04 percent high for this year reached at the end of March.

Analysts attributed this week's drop to further evidence that the economy slowed significantly in March, a slowdown that is expected to keep the Federal Reserve from abandoning its gradual approach to raising interest rates. The Fed on Tuesday boosted a key short-term rate for the eighth time since last June, raising its target for the federal funds rate by a quarter-point to 3 percent.
Source: Associated Press

1 comment:

Ray said...
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