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Interest rate spike emerges as a concern for the Fed
Ylan Q. Mui / The Washington Post / June 26, 2013
The Federal Reserve is becoming concerned that the recent spike in interest rates could disrupt the rebound in the housing market and force the central bank to delay plans to scale back its multibillion-dollar economic stimulus.
The Fed believes the economy eventually will be strong enough to handle a pullback in stimulus, likely in the fourth quarter. But a prolonged rise in interest rates for mortgages and other loans would become a key factor in the central bank’s decision.
Chairman Ben S. Bernanke said last week that the Fed is monitoring these rates but expressed hope that consumer confidence could offset the increase. Since then, interest rates on 30-year fixed mortgages have gone up at least half a percentage point, a rare jump for such a short time.
The Fed’s $85 billion-a-month bond-buying program is one of the last sources of economic stimulus for the country. Officials have been trying to prepare the markets for its eventual end. Bernanke said last week that will probably occur in mid-2014, when the unemployment rate is expected to be about 7 percent.
But the jobless rate is not the only consideration. The Fed is looking for faster economic growth and a pickup in inflation. The government on Wednesday said the economy expanded at an annual rate of 1.8 percent — well below its initial estimate of 2.4 percent. Meanwhile, inflation has fallen to less than 1 percent, about half the Fed’s target rate.