Interest rates to stay low?
The Federal Reserve is expected to leave interest rates at a record low this week. The big question is whether Chairman Ben Bernanke and his colleagues will hint about when they will reverse course and start boosting rates. The Fed is expected to announce its policy decisions on Wednesday afternoon and experts don't think it's likely to raise rates for the foreseeable future, perhaps not until 2011. Last week, Bernanke warned that the economy confronts "formidable headwinds." They include a weak job market, cautious consumers and tight credit. Against that backdrop, the Fed is all but certain to keep the target range for its bank lending rate at zero to 0.25 percent, where it's stood since last December. The Fed also is likely to retain a pledge first made in March to hold rates at such levels for "an extended period." Economists say they think the chairman and many other policymakers are willing to wait too long to raise rates than risk hiking too soon. "I think they'll l eave the taps open as long as possible, until they're absolutely certain the economy is back on track," said Anthony Michael, head of fixed income for asset manager Aberdeen's Singapore office.
In recent statements issued after policy-making meetings, the Fed keeps cautioning that it expects economic conditions "likely to warrant exceptionally low levels of the federal funds rate for an extended period." The central bank also isn't expected to make any major changes to a program, set to expire in March, to help further drive down mortgage rates. "The economy isn't on solid footing yet," said Chris Rupkey, an economist at the Bank of Tokyo-Mitsubishi. "So it's best for the Fed to keep with the script of low interest rates."
Stimulus to wind down in 2010
According to a BBVA Compass analyst, the Federal Reserve is likely to execute its exit strategy for winding down the period of extraordinarily low interest rates used to stabilize the economy as early as the summer of 2010. “In Q409, it is clear that the worst of the recession has passed; the economy expanded in the third quarter, ?nancial conditions are stabilizing, residential investment grew for the ?rst time since 2005, consumer spending is picking up and business inventories are more in line with sales,” BBVA research department’s chief US economist Nathaniel Karp wrote in a fourth quarter outlook report. Industry players surveyed eight weeks ago expected the Fed’s low interest rates to rise as early as February 2010. A survey conducted within the past two weeks showed now rates aren’t expected to rise until June 2010, Karp said in a conference call Monday. Inflation pressures will remain low “in the foreseeable future,” enabling the Fed to keep interest rates low. “Given the slack in the economy, the Fed is expected to gradually wind down the monetary stimulus. The strategy is anticipated to focus ?rst on the withdrawal of quantitative easing and then on raising rates,” Karp wrote.
In residential real estate, low prices, attractive mortgage rates and the extension of the homebuyers’ tax credit will support demand, which will prompt more construction, Karp wrote, adding that commercial real estate (CRE) will continue to suffer from a lack of available credit. The strains in commercial real estate are larger in office space and “milder” in apartments.
PPI up
The PPI index put out by the Commerce Department shows U.S. wholesale prices rose nearly twice than expected in November, while conditions for New York manufacturers deteriorated in December, following four months of improvement. The producer price index for finished goods leapt 1.8% on a seasonally adjusted basis in November. Economists surveyed by Dow Jones Newswires had expected prices would climb by 1.0%. Core PPI, which excludes volatile food and energy prices, rose 0.5% in November, more than double the 0.2% rise economists surveyed by Dow Jones Newswires had expected. The Labor Department said gasoline prices rose 14.2 percent month, eclipsing a sharp moderation in food price increases. Separately, the Federal Reserve Bank of New York's Empire Manufacturing Survey showed its general business conditions index fell by about 21 points to 2.55 from 23.51 in November. Its indexes for new orders, shipments and employment all fell, with the index for employment moving into
negative territory.
The New York Fed's "Empire State" general business conditions index fell 2.55 in December from 23.51 in November. This was the biggest monthly decline on record and the lowest reading since July 2009 when it was at minus 0.55. The index has risen from a record low of minus 22.23 in March. The reports come as the Federal Reserve is set to begin deliberations on interest rate policy. Ahead of the meeting, the dollar was moving higher Tuesday morning against both the euro and the yen, while Treasurys fell. Crude-oil futures moved lower, though gold futures rose. The action comes after U.S. stocks rose Monday, pushing the Dow to a new 2009 closing high as Abu Dhabi's $10 billion loan to Dubai and Exxon Mobil's $31 billion acquisition of XTO Energy boosted sentiment.
Demand for building materials low
Moody’s Investors Service says The demand for building materials will continue to be low in 2010, resulting in reduced pricing power and profitability for most of next year. Demand for cement, aggregates and ready-mixed concrete will continue to decline, hurting revenue and cash flow for materials industry companies. The decline in demand will come primarily from nonresidential construction, which is projected to decline nearly 9% said Moody’s senior vice president Glenn Eckert. Although the falloff in nonresidential construction could start to let up in 2011, the recovery in building-materials shipments will be slow and painful, he added. However, public construction and infrastructure projects, primarily those funded by government stimulus programs will be a boost for the materials industry. After four years of steep declines, residential construction will enter a period of weak but stabilizing activity. “Foreclosures and high unemployment will weigh on demand for newly built homes, suppressing any substantial up tick in demand for building materials from this sector for much of next year,” Eckert said.
HAMP servicers grow to 88
The number of servicers participating in the Home Affordable Modification Program (HAMP) grew to 88, according to the latest report from the US Treasury Department. Under HAMP, the Treasury allocates capped incentives for the modification of loans on the verge of foreclosure. Currently, the 88 servicers could receive a potential $27.4bn in capped incentives, but the details of the program make room for $50bn. Of the newcomers, Phoenix-based Marix Servicing earns the highest cap at $20.3m. The Idaho Housing and Financing Association, based in Boise, receives a $9.4m in capped incentives. In third place is the Golden 1 Credit Union, based in Sacramento, earning $6.1m in capped incentives. Fidelity Homestead Savings Bank, based in New Orleans, receives $2.9m in capped incentives. Based out of Spokane, Wash., Sterling Savings Bank earned a $2.2m cap. Silver State Schools Credit Union, out of Las Vegas, received a $1.8m cap. American Eagle Federal Credit Union, based in East H artford, Conn., can receive $1.5m in incentives. First Keystone Bank from Media, Penn. receives up to $1.2m in incentives. Community Bank & Trust Company from Clarks Summit, Penn. received $380,000 in incentives. Spirit of Alaska Credit Union, based in Fairbanks, received $360,000. And both Home Financing Center in Coral Gables, Fla. and Bay Gulf Credit Union of Tampa earned $230,000.
HOME | 
