Consumer Interest Rates Remain High
Despite the efforts of the Federal Reserve in lowering interest rates to 2%, the market has not passed on theses lower rates to consumers. In a rate cutting campaign that began last September, the Fed has tried to stimulate financial markets and ease the credit crunch that has been gripping the economy for almost a year.
Unfortunately the housing market is getting worse and that’s not helping matters at all. With lenders still having substantial exposure to the residential mortgage market, they are being very careful about who they loan money to these days.
Consumer interest rates remain relatively high, from credit cards to mortgage rates and consumer spending is being impacted significantly as a result. More writedowns are expected in the upcoming quarters so troubled institutions are hoarding as much capital as possible lest they meet the same fate of IndyMac Bancorp.
Back in March many financial experts thought the worst had passed but earlier this week, Fed Chairman Ben Bernanke testified before Congress stating that downside risks to economic growth have risen sharply over the past month. It is looking less and less likely that the Fed will raise rates in September, as many were predicting in order to finally stop some of the bleeding from skyrocketing energy prices.
It’s pretty much going to boil down to when housing recovery might be possible but with government sponsored agencies, Fannie Mae and Freddie Mac going through their own financial troubles at the moment, it’s difficult seeing them stimulating the mortgage market anytime soon until they get their own house in order.
