While the federal funds rate will likely stay at 2 percent, more than one voting member of the rate-setting Federal Open Market Committee policy-makers may dissent and call for higher rates. The Fed kept rates unchanged when the panel last met in June.
The last time the Fed changed rates was in April, at which point it reduced the interbank fed funds rates down by a cumulative 3.25 percentage points from September 2007. The Fed has suggested it hopes these rate reductions will be enough to help the economy rebound.
In light of the nation’s unemployment rate in four years and the lowest existing-home sales pace since early 1998, policymakers are expected to be more cautious about the growth outlook than they were in June, when they believed risks were slowing.
Factors contributing to slower growth are myriad, including a slowdown in worldwide economic growth which could negatively affect U.S. exports; continuing credit strains as a weakened banking sector continues to tighten lending; and the U.S. central bank’s recent decision (in coordination with European and Swiss monetary authorities) to extend and expand extraordinary credit facilities for banks and securities.
One bright spot: Oil prices have declined from a record high in July of over $147 a barrel, which could offer a bit of breathing room for the Fed, which in June said risks that inflation could tick higher had increased. Yesterday, oil prices dipped below $120 a barrel for the first time since early May.