Fed Will Ease Credit Further, Economists Say : Policy-Making Panel Begins Session Today
Policy-makers at the Federal Reserve will continue easing credit in an effort to keep a sluggish economy from sliding into recession, many analysts believe. That should translate into good news for borrowers.
Costs of a variety of loans, including mortgage rates and home equity loans, all are expected to head lower through the rest of the summer, private economists say.
The Federal Open Market Committee, composed of members of the Federal Reserve Board in Washington and five of the 12 regional Fed bank presidents, will meet today and Thursday for an important mid-year review of where monetary policy is going.
The central bank, through its control of interest rates and the nation’s money supply, has a powerful influence over the course of the economy. It strives to provide enough credit to keep the economy expanding while guarding against supplying so much money that inflation is rekindled.
Early-Warning Signal
In March, 1988, the Federal Reserve began a credit-tightening effort that drove interest rates up by 3 full percentage points, depressing the housing market and sales of such big-ticket items as autos.
But last month, in a major policy shift, the central bank sent a key interest rate, the federal funds rate, down by 0.25 percentage point to around 9.5%.
This rate, which is the interest that banks charge each other to make overnight loans, is considered the best early-warning signal of Fed intentions. The central bank influences the rate through daily decisions on how much money it will make available to the banking system.
In advance of today’s closed-door meeting, many private economists suggested that FOMC will decide to push the funds rate down by another one-fourth percentage point.
The central bank has been struggling to keep alive the record peacetime economic recovery, now in its seventh year, by engineering a “soft landing” for the economy. Under that scenario, growth would slow enough this year to dampen inflationary pressures but not so much that the country was plunged into a recession.
