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 JAN 11, 2007
Rate Cuts Are Not Likely to Occur
The Vice Chairman of the Federal Reserve Board, Donald Kohn has clearly stated that it is unlikely that the Board will cut rates based simply on a few months of falling energy costs.


In a speech to the Atlanta Rotary Club, Kohn stated that the Board sees tentative signs that indicate the housing market is beginning to stabilize. He added that the risks that continue to exist cause the outlook to remain largely on the downside.

Kohn also stated that relative to basic determining factors such as interest rates and rents, housing prices remain high. Uncertainty towards current market conditions is heightened by the fact that the housing market isn't weak for the usual reason of high interest rates. In the current situation the market is weakening due to high sales and construction costs.

Long-term rates rate remain relatively low, which is one of the current supporting factors in this housing market. Long-term loan rates could go up if rates on short-term loans do not follow the downward road which is currently a part of market expectations; or if what is referred to as "term premiums" go up. Term premiums are the additional rate that lenders charge borrowers for a long-term loan, compared to short-term loans.

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