Fed’s Interest Decision a Sign for Economic Uncertainties ahead

Analysts:

By Jennifer Liu

January 27, 2016 ǀ Reporting from Los Angeles

FEDERAL Reserve Open Market Committee concludes its two-day meeting on Wednesday, and decides to maintain the target range for the federal funds rate at 1/4 to 1/2 percent. Fed’s move does not exceed the expectations of economists, financial and stock market analysts who suggest that the overall American economic situation is still struggling, and the world economy as a whole is that optimistic.

The Committee indicates in its press release that “household spending and business fixed investment have been increasing at moderate rates in recent months, and the housing sector has improved further. However, net exports have been soft and inventory investment slowed. A range of recent labor market indicators, including strong job gains, points to some additional decline in underutilization of labor resources. Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports”.

The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run.

“Given the following factors, it is not appropriate to increase the interest rate at this moment,” said Mr. William Chen, president of Home Loan Mortgage Co. First, the American economic recovery has been on slow mode. And housing sector keeps restrained by tightened government regulations on mortgages. Secondly, the quantitative easing policy implemented since 2008 has failed to fix financial loopholes. Banks, though having funds available, are cautious in lending, and rather purchase government bonds. The financial situation appears OK, however, the economy sees no big leap. Lastly, internationally speaking, the U.S. will not benefit from interest rate hike.

Mr. William Chen, president of Home Loan Mortgage Co.
Mr. William Chen, president of Home Loan Mortgage Co.

Chen worries American economy might follow the same old path if bad practices are not properly corrected. And he does not foresee economic boom in a short period of time. Stock market might have big fluctuation.

“It is a natural thing to do to keep the interest unchanged,” said Professor William Yu of UCLA Anderson Forecast. Such factors as slowdown of Chinese economy, decline of stock market, low oil price and sliding sales of Apple products prompt Federal Reserve to take conservative stance on interest rate. According to Yu, the chance to increase the rate in the following months is slim.

Mr. William Yu,  professor of UCLA Anderson School of Management
Mr. William Yu, professor of UCLA Anderson School of Management

In his comment on Fed’s move Wednesday, Tony Sun, a stock market analyst maintains this is a sign that the government is not that optimistic about the current economic situation. The further decline of stock market seems inevitable.

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Mr. William Chen, president of Home Loan Mortgage Co., and guest professor of Northwest University and Sun Yat-sen University in China, is the only Chinese American Accredited Mortgage Professional (AMP) certified by Mortgage Banks Association. Prior to founding the first Chinese American mortgage institution, Mr. Chen served with China Science Academy, and was well known for his essay “On the Evolution of the Earth in relation to the Galactic System”.

Mr. William Yu, graduated from National Taiwan University in 1995, is a well-known professor of UCLA Anderson School of Management and Economist of Anderson Forecast, specializing in the study on the implications of Chinese economy on the U.S. economy.

 

 

 

 

 

 

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