Why they won’t raise: Are you kidding? With the economy tripping and stumbling along, especially considering that interest rates are still exceptionally low, anything further “letting off the gas” (the brakes haven’t been touched in many years) may cause it to go into a tailspin.
Why they won’t lower: The recent weakly-positive reports show the economy still tripping and stumbling along, so there’s not enough weakness to “react to” with a cut, thank goodness. And they certainly shouldn’t lower in reaction to the tanking housing market, any more than they raised in reaction to the overheating housing market in the past. The best thing we can do for the housing market (or the overall market) is to let it work itself out. We had our 10%+ yearly gains, now it’s time for the other side of the coin. Remember “reversion to the mean”?
A change in the Fed Funds Rate in either direction would be bad for the stock market, on the one hand because, well, rates would be going up. On the other because if they lower we’ll hear “The Fed is showing us that they think the economy is too weak, which will be bad for corporate profits, etc, etc.”
And of course, don’t forget the ever-present dollar. The Fed Governors, despite what they say for the sound bites, are wary about weakening it any more through their actions. Their best hope, their only hope at this point, is for some magical fire to light under our economic growth so they can “come to the rescue” and start raising to try to contain that growth. Mmm, good for dollar.
And they can hope for spending restraint. Or for pigs to fly. Let’s see, we have the tax- and- spend democrats… and now the neo-Republicans with their cut- taxes- and- spend- even- more gluttony. No spending limits in sight. So, we’re left with hoping for decent economic growth.
Here’s to hoping. Cheers.