American Express, Bank of America and other lenders have seen their consumer-delinquency rate decline, which might lead to more loans and an increase in economic growth. Economist Stephen Stanley said in a Bloomberg report the development might weaken the Federal Reserve’s commitment to keep interest rates low for an “extended period,” at least once the European sovereign-debt crisis is no longer seen as a threat.
Federal Reserve Board Chairman Ben Bernanke, in a May 6 speech in Chicago, said bankers’ attitudes on lending “may be shifting,” citing as “reasons for optimism” the economic recovery and expectations among senior loan officers for a “modest reduction” in troubled loans. The comments were overshadowed by that day’s 9.2 percent intraday plunge in the Dow Jones Industrial Average, which was sparked in part by concerns about euro-zone defaults.
The European debt crisis will not likely fade from memory that quickly, and several “aftershocks” in the PIIGS (Portugal, Ireland, Italy, Greece, and Spain) countries will likely keep pressure on credit markets, forcing the Fed and other central banks to work to ensure market liquidity remains at sustainable levels. It is this combination that has led Trafalgar Investment Advisers LLC to believe that U.S.-oriented companies will benefit most in the near-term, as the U.S. economic recovery pushes along due to low interest rates and low inflation, while Europe struggles. Any move by the Fed to raise rates will likely occur in early 2011. One move the Fed may make in the interim is to raise the discount rate, which the rate charged by the Federal Reserve for overnight loans to financial institutions, another quarter- or half-percentage point, but the target federal funds rate (which can affect all types of business and consumer loan interest rates) will most likely remain in the range between 0 and 0.25.
Gregg D. Killoren
victoria1014
