'This is my corner'

Page 8 BLACK HILLS PIONEER
Tuesday, March 16, 2010
Fed weighs how and when to signal higher rates
WASHINGTON (AP) — Debate is
heating up within the Federal Reserve
over how and when to signal that the days
of record-low interest rates are numbered.
A rate hike isn't imminent. But at their
meeting, which started Tuesday morning,
Federal Reserve Chairman Ben Bernanke
and his colleagues will likely focus on
how to telegraph that higher rates are
coming once the economic recovery is
more deeply rooted. Eventually, Fed policymakers
will need to start bumping up
rates to head off inflation.
It will be a challenging maneuver. Fed
officials will want to signal a move to
higher rates in advance so borrowers and
investors aren't jarred. And they will need
to send a signal that isn't confusing.
The Fed has held rates at a record low
near zero since December 2008. Bernanke
and other Fed officials have said low rates
are still needed to underpin economic
growth.
But they need to decide whether to keep
or modify their yearlong pledge to hold
rates at record lows for an Xextended period.X
Economists generally think Xextended
periodX means at least six more months.
The Fed could drop that commitment
altogether. Or it could pledge to keep rates
low only for Xsome timeX or vow to keep
Xpolicy accommodative.X Or it could
change its language in some other way to
HEALTH CARE !ontin&e( *ro, Pa/e 0
Another lawmaker who opposed the legislation last year,
Rep. Dennis Zucinich, D-Ohio, flew with Obama on Air
Force One to an Obama appearance in Zucinich's district
Monday. Zucinich, was against the bill because he wants a
larger government role in health care, also is not ruling out
voting XyesX this time.
With a number of anti-abortion Democrats expected to
defect over provisions they contend allow federal funding of
abortion, every vote will count for Democratic leaders, who
need to win over lawmakers who opposed the legislation the
first time ` and keep reluctant supporters on board in the
face of escalating attacks. Sweetening the pot, those who
vote with the president may get more help from him in the
future: Party officials said that in determining how to allocate
Obama's time for campaign stops or other events, a
vote on something like health care would be a consideration.
House Democrats triggered the countdown Monday for
the climactic vote, with the House Budget Committee agree-
stress that credit will be tightened when
the time is right. Any such step would signal
that the days of easy money are fading.
Inside the Fed, debate is
intensifying.
Thomas Hoenig, president
of the Federal Reserve
Bank of Zansas City, has
pushed to change the signal.
At the Fed's last meeting
in late January, Hoenig
dissented from the Xextended
periodX pledge. He
favored saying rates would
stay low for Xsome time.X
He thought that would give
the Fed more flexibility to
start raising rates.
Some economists aren't
ruling out a change in language
at Tuesday's meeting.
An afternoon
announcement is expected.
Others don't think a change
will come until the Fed's next meeting on
April 27-28.
XDuring the Depression, the Fed tightened
policy too soon and cut off the
recovery before it was self-sufficient,X
said Joel Naroff, president of Naroff
Economic Advisors. XThe Fed doesn't
want to make that mistake again. I think
“During the
Depression the Fed
tightened policy too
soon and cut off the
recovery before it was
self-sufficient. The
Fed doesn’t want to
make that mistake
again.”
Joel Naroff, President of Naroff
Economic Advisors
that they are willing to stay with very easy
money longer than they might normally
because of all the damage that has been
done to the economy.X
The recession wiped
out 8.4 million jobs. And
with companies still wary
of ramping up hiring, the
unemployment rate —
now at 9.7 percent — is
likely to stay high.
Even though the jobless
rate hasn't budged for two
months and companies
aren't cutting as many
jobs as they did a year
ago, hiring is tepid.
Consumer and business
spending is sufficient to
keep the economy growing
only modestly.
Lending remains tight.
And, the housing and
commercial real-estate
markets are wobbly. A
government report out Tuesday showed
that housing construction tumbled in
February as snowstorms held back activity
in some parts of the country.
XCautiously optimistic is where the Fed
is right now,X said William Cheney, chief
economist at John Hancock. XBut it is
heavy on the caution and light on the opti-
ing 21-16 to fast-track rules for the health bill, a necessary
first step before floor action. Even so, the legislation
remained incomplete. House Democrats caucused Monday
evening, and a number of rank-and-file lawmakers straggled
out discouraged that they still didn't have final legislative
language or a cost estimate from the Congressional Budget
Office.
Leaders hope to get both those things Tuesday. Until then
there's only so much they can do to pin down wavering lawmakers
who will soon be asked to make one of the riskiest
votes of their careers.
XThere's no decision yet on what the process is going to
be, there's nothing back from the CBO, there's no commitment
yet from the Senate that they can get 51 votes, and
there's no bill to show me what it's in it,X said Rep. Dina
Titus, D-Nev., a freshman who voted XyesX last year and has
been targeted by Republicans. XSo until those things get
resolved I'm staying uncommitted.X
Democratic leaders sounded notes of optimism anyway.
XWhen we bring the bill to the floor, then we will have
the votes,X said Speaker Nancy Pelosi, D-Calif.
Obama said in an interview with ABC News: XI believe
mism.X
That helps explain why the Fed is
expected to keep its key rate at a record
low Tuesday. It has held its target range
for its bank lending rate at zero to 0.25
percent since December 2008. In
response, commercial banks' prime lending
rate, used to peg rates on certain credit
cards and consumer loans, has remained
about 3.25 percent ` its lowest in decades.
Super-low rates benefit borrowers who
qualify for loans and are willing to take on
more debt. But they hurt savers. Low rates
are especially hard on people living on
fixed incomes who are earning measly
returns on savings accounts and certificates
of deposit.
The Fed could start boosting rates as
early as June ` if economic growth accelerated.
A more likely time is this fall,
economists say.
Investors also will be looking to see if
the Fed makes any changes to an economic-support
program that's lowered mortgage
rates and bolstered the housing market.
Under that program, the Fed is scheduled
to end its mortgage-securities purchases
from Fannie Mae and Freddie Mac
at the end of this month.
Some analysts fear that once the program
ends, mortgage rates could rise. That
could weaken the recovery in housing and
the overall economy. The Fed has left the
we're going to get the votes. We're going to make this happen.X
In order to avoid a Republican filibuster in the Senate, the
House will be voting to approve the Senate's health overhaul
bill, along with a package of fixes to change things House
Democrats didn't like, such as a tax on high-value insurance
plans. That fix-it package can pass the Senate with a simple
majority, a necessary approach because Republicans are
unanimously opposed and Democrats control only 59
Senate votes, one short of the 60 needed to block a filibuster.
A complicated procedure is being contemplated for the
House floor, too, one that would shield lawmakers from
having to vote directly on the Senate bill, allowing them to
instead approve a rule for debate that would deem the
Senate bill passed once the fix-it bill has passed.
Outside interests on both sides turned up the heat.
Union groups and other supporters announced a $1.3 million
advertising campaign urging 17 House Democrats to
vote for the measure, and officials at the Service Employees
See HEALTH CARE — Page 31
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