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Economic News

Federal Reserve leaders calling for policy changes, keeping rates low

Opinion one: Elizabeth Duke

Federal Reserve Governor Elizabeth Duke said that because consumers continue to struggle with weak housing and high gasoline costs, the Fed is unlikely to raise interest rates any time soon after lowering them to nearly zero in December 2008.

“Many families, particularly those with low-to-moderate incomes, are actually facing the decision between buying gas to drive long distances to work and paying their mortgage,” Duke said. This is a critical note for real estate practitioners in the field as an explanation for many of America’s defaults you are now having to contend with.

“The financial crisis and the slow recovery from it has obviously had a dramatic impact on the financial decisions made by American families. Many now have fewer financial resources and limited options,” Duke said.

Opinion two: Thomas Hoenig

Kansas City Federal Reserve President Thomas Hoenig said this week that banking organizations should be restricted to loans and deposits only and proprietary trading, dealing, brokerage and “non core banking services” should be off limits as they get in the way of risk assessment and control. “The social costs of additional activities and the associated complexity can greatly exceed the private benefits to an individual bank,” said Hoenig, who Reuters notes has been amongst the most vocal Fed officials calling for a break up of banks deemed “too big to fail”.

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Opinion three: Eric Rosengren

Boston Federal Reserve President Eric Rosengren said that because banks in 2007-2009 that had “adequate capital” according to current definitions of the word, were unable to calm investors, the term should be more narrowly defined as that which can easily absorb losses during a crisis.

What’s next?

Regulators differ in a consensus on the way forward, but different leaders within the Federal Reserve are calling for restrictions and more conservatism in the American financial system. Rates look to stay low for quite some time, but with several thought leaders calling for change, it remains unseen which direction the system will change but analysts are confident change is coming.

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