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    Hoenig – Fed decision to keep rates low “is surprising”

    December 7th, 2010 Posted by CMC Gao Hua 0 thoughts on “Hoenig – Fed decision to keep rates low “is surprising””

    CMC Gao Hua – At the latest meeting of the US Federal Reserve, the central bank board members voted to maintain interest rates at their current ultra-low levels as it warned that debt issues in the eurozone could affect American economic expansion.

    The Fed was not specific about the timeframe for keeping rates low but said it could be “a while longer”.

    President of the Kansas Federal Reserve Tom Hoenig, not for the first time, was critical of the decision and described the board’s consensus as “quite surprising” and maintained that the ultra-low levels were not warranted at this time.

    The board seems to have been swayed by the discouraging housing market, which has taken a 33 percent nosedive following the withdrawal of the government’s tax break initiative that previously rewarded first-time buyers with, on average, an $8,000 saving.

    Now the forecast for home sales is at its lowest level since the early 60’s, according to economists, and they agree that the slowdown is due to the elimination of the tax break although many say the housing sales are likely to pick up quickly.

    “A bigger concern for us at the moment is the average time it takes to sell a home in America today,” says at IHS Global Insight senior analyst Patrick Newport. “It’s a bit of a blow to the statistics. The construction market is also suffering at the moment.”

    Mortgage applications are currently down by nearly 6 percent, according to data from the Mortgage Bankers Association, while a recent poll by the Business Roundtable revealed CEO’s of prominent American firms are significantly more optimistic compared to the first quarter as they forecast sales growth and increased employment figures. They also predict foreign investment to jump in the next 3-month period, and this was backed up by data from leading Beijing-based investment company, CMC Gao Hua.

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