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The Federal Reserve Board reported today (Oct. 28) that it believes there is a 50-50 chance that the economy will achieve a more rapid, but sustainable, rate of growth in the next few quarters.
Consequently, the Fed decided today to leave interest rates unchanged at their historically low levels.
As a result, it can be assumed that lenders will keep their prime rates, to which RV-dealer and consumer-loan rates are pegged, at 4%, the lowest level for the prime since 1958.
The prime has been at 4% since June 27.
The Fed believes low interest rates are “providing important ongoing support to economic activity,” which, combined with “robust underlying growth in productivity” creates the possibility for faster rates of economic growth.
Other good signs for the economy are that “spending is firming and the labor market appears to be stabilizing,” the Fed reported.
However, the board believes “the upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal” because there still is a slim chance that deflation could occur. Deflation occurs when prices generally fall because of a decrease in spending relative to the supply of available goods. In periods of deflation, consumers often delay purchases, especially of big-ticket items such as RVs, on the assumption that prices will come down.
Federal Reserve offcials said they are more worried about deflation setting in than a higher rate of inflation, in which prices are pushed higher.
The Fed believes there is little chance for higher inflation anytime soon because the ability of businesses to raise their prices “remains muted.”