The European Central Bank raised their interest rates by a relatively modest .25 %. The logic behind such a move is to stem the tide of inflation. The Federal Reserve Board decided against raising rates at this time.
Many economists are convinced that raising rates will help reduce inflation and make United States dollars more desirable to international investors. At this time their out of date logic makes me wonder. Due to the impact mortgage backed securities due to sub-prime and Alt-A mortgages foreign investors would look very carefully at making any investments in the financial markets. It has weakened international confidence and the dollar overseas.
I am disappointed that the lower interest rates did not trickle down to consumers here in the United States. Lenders are reluctant to significantly reduce rates to borrowers. They are making it more difficult to obtain financing to all borrowers to refinance existing mortgages. Raise or lower the interest rates make little or no difference at this time. When the rates were lowered, lenders did not effectively pass on any savings to the consumer. If the rates rise, the lenders still will be reluctant to grant credit at any price.
NO, interest rates will have little if any impact on the prices we are and will be seeing in the future. Currently, the weak dollar and high oil prices are the main culprit. Fuel surcharges have severely impacted smaller retail sales venues because of higher delivery costs. The service sector has higher transportation costs and in isolated areas formerly free estimate is becoming an endangered species.
In the meantime we are being told that unemployment remained steady, even though the unemployment rolls increased by 62,000. Extensions to unemployment rolls were not granted. The U.S. economy shed 62,000 jobs in June while the unemployment rate unexpectedly remained at a four-year high of 5.5%, the Labor Department reports. Excuse me, this does not mean that unemployment has not risen, just that it is not being accurately reported.
Congress, the senate, and president can not agree long enough to take any action that will actually benefit the citizens stricken by the worst of the economy and the subprime. Reading the news about the hearings leaves me with an image of thousands of people debating the issue, their eyes crossed looking at the silver spoons sticking out of their collective mouths.