INTEREST RATES
Last updated: Aug. 13, 2008
The Federal Reserve is warning about impending inflation, but a weak economy is likely to see interest rates unchanged into early 2009. Some members of the policy-setting Federal Open Market Committee want a rate hike sooner rather than later because they think inflation has been too high for too long. But Fed Chairman Ben Bernanke leads a majority that wants to wait a while longer, until credit markets are more stable and until the housing slump shows a clear sign of leveling off. So look for the Fed to hold the fed funds rate at 2%. In turn, banks will hold their prime lending rate at 5%. As for long-term rates, investors will continue to shy from risk and therefore buy U.S. bonds, which will help keep rates from rising too much. Still, inflation concerns will send the 10-year Treasury to about 4.25% by yearend. The 30-year fixed-rate mortgage will hang around 6.5%.
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