The Federal Reserve is meeting again this week, and fed watchers are not expecting another rate cut. In fact, some say a rate hike would not be a surprise. One of those who are thinking along those lines is Ray Hennessey, editor of SmartMoney.com.
The Federal Reserve is currently faced with an economy that hasn't slowed down, which may force them to raise interest rates. That comes into play if you're trying to buy or sell your home. Hennessey believes the Federal Reserve has misread the housing market. "They've overestimated the impact of the housing slow-down," says Hennessey. "It wasn't this bubble bursting... And it hasn't been catastrophic." Because the change wasn't as dramatic as the Federal Reserve assumed it would be, the economy is still doing well.
Another reason for a possible rate hike? Employment is still very tight, according to Hennessey. "What you want for a slowing economy is a higher unemployment. We still have... Near full employment," he says. It works out well for those of us who are part of the work force, but it can be a hindrance for the Federal Reserve if they're trying to keep the economy in check.
A rate increase would affect investors as well. "You want to be able to borrow money at a cheap rate so you can then reinvest in your business," says Hennessey. "Markets like a lower interest rate environment."
Higher inflation is also a worry. According to Hennessey, "Prices are still going up even as energy costs have come down." In Hennessey's opinion, the Federal Reserve has misread inflation rates the most.
For more information on interest rates and the Federal Reserve, click here.
By Erin Petrun
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