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Reports: US Fed expected to hold steady on rates

(Xinhua)
Updated: 2008-09-10 14:42

The US government's takeover of Fannie Mae and Freddie Mac won't change the Federal Reserve's current course of interest-rate policy, The Wall Street Journal reported Tuesday.

Amid a nagging credit storm and improved inflation backdrop, the Fed looks increasingly likely to keep its benchmark interest rate unchanged at 2 percent into next year, said the report.

A few months ago, it said, some investors thought short-term interest rates would be moving higher by now amid mounting worries about rising oil prices and inflation.

But those concerns have receded as troubles in the economy show few signs of abating, leaving Fed officials inclined at their meeting on September 16 to keep rates at the same level they have been at since April.

Futures market does not see significant odds of a rate increase until spring, according to the report.

The report said that housing remains at the center of the Fed's concerns about growth and financial stability.

The government's recent takeover of Fannie Mae and Freddie Mac, the two companies that own or guarantee half of the nation's mortgages, should make it cheaper for the mortgage finance giants to borrow.

That could help nudge mortgage rates down as much as half a percentage point, by some estimates, which could bring more buyers into the housing market and help prices find a floor, it said.

But immense uncertainties about housing linger, one factor making officials cautious about pushing interest rates higher any time soon.

Home-price declines have shown glimmers of slowing in some parts of the country, but they might have been distorted by seasonal factors.

Home sales also show tentative hints of stabilizing, but could deteriorate further if credit conditions tighten, the report said.