A member of the Federal Reserve's interest rate-setting committee broke ranks for the first time and argued that the US central bank should end its commitment to keeping rates at rock-bottom levels for an extended period of time.
The Federal Open Market Committee yesterday decided to keep rates in the zero-0.25 per cent range once again but noted that economic conditions continued their gradual improvement.
Thomas Hoenig, the head of the Kansas City branch of the Fed, dissented to the continuing use of doveish language, in what financial markets took as a sign that rates could begin to rise earlier than previously thought. The Fed has not only been keeping official rates at the lowest levels possible but also been printing money in a process called quantitative easing.
"Economic activity has continued to strengthen and the deterioration in the labour market is abating," the FOMC said yesterday, but the committee "continues to anticipate that economic conditions, including low rates of resource utilisation, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period".
At the last FOMC meeting in December, members had shown diverging views about the future of the quantitative easing schemes, with some they should be curtailed and others arguing for their extended. Some expressed concern about what might happen to house prices when the Fed's purchases of mortgages end in March and tax breaks for first-time buyers expire at the end of April.
Earlier yesterday, there had been more downbeat news on the housing market, with government figures showing that sales of newly built homes tumbled at an annualised rate of 7.6 per cent in December. Economists had been predicting growth of 2.8 per cent. Only 374,000 new homes were sold last year, down 23 per cent from 2008 and the weakest year on records dating back to 1963, as banks made it harder for borrowers to get mortgages, while potential buyers worried about unemployment and about taking on too much debt.
Yesterday's report came on the heels of a similarly disappointing figure for existing home sales on Monday.Reuse content