Rate watch
Posted on 30 June 2010 by
Andrew Sentance of the MPC called for a rise in interest rates for the first time in almost two years, the latest minutes show. He voted to lift rates by 25bps due to stubborn inflation. It was the first call for a UK rate rise by an MPC member since August 2008, and has surprised economists, who expected another unanimous decision.
The Fed has kept its main interest rate at close to zero, as doubts persist about the strength of the economic recovery. The Fed said that the recovery was "proceeding", but that "financial conditions have become less supportive of economic growth on balance". As a result, it said rates would likely remain "exceptionally low for an extended period."
As with the UK MPC, one member of the rate-setting panel disagreed with this assessment. Thomas Hoening argued that by reiterating its belief that rates would remain low, the Fed's Open Market Committee was compromising its ability to begin raising them. The committee said that while the labour market was improving and household spending was increasing, a depressed housing market and falling bank lending was constraining growth.
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