Baby Steps Toward Higher Interest Rates

Is the Federal Reserve taking baby steps back to a more historically normal monetary policy? That is, toward an eventual broader hike in interest rates?

February 19, 2010
By Dees Stribling, Contributing Editor

Courtesy Flickr Creative Commons user David Paul Ohmer

Is the Federal Reserve taking baby steps back to a more historically normal monetary policy? That is, toward an eventual broader hike in interest rates? Possibly, but in any case, the decision on Thursday by the central bank to increase the rate it charges banks for emergency loans, from 0.5 percent to 0.75 percent, seemed to catch the financial markets mostly by surprise.

In a statement, the Fed emphasized that “the modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy.”

Not long before, the Fed had promised that its federal funds rate–its benchmark, or the rate at which banks borrow from each other overnight–would remain at “exceptionally low levels” for “an extended period,” which is a good example of the Oracle of Delphi-like pronouncements that the Fed sometimes makes. After all, even a somewhat higher rate than the current one (0 to 0.25 percent) would still count as an “exceptionally low level,” in the long view of history.

Blackstone Eyes General Growth?

It was about three years ago that Blackstone Group LP bought Equity Office Properties Trust in the largest real estate deal ever, and then sold most of its new office assets off before the property bubble burst. Blackstone might be eying another trophy property deal, according to Bloomberg, citing unnamed sources on Thursday: none other than General Growth Properties Inc.

It’s plausible, since Blackstone’s real estate war chest, some $12 billion, is enough to make it a player. In the meantime, GGP CEO Adam Metz wrote back to Simon CEO David Simon in the latest public letters between the two, dated Thursday. It was a pithy missive, reproduced here in its entirety:

“Dear David: Reference is made to your letter dated February 17. As we have previously stated, our objective is to maximize value for the company and its stakeholders and we are engaging in a process that is intended to accomplish that result in an expeditious manner. Understandably, your objectives are not aligned with ours. We hope you will, nonetheless, participate in our process.”

Wal-Mart Gets the Blues

Wal-Mart Stores Inc. reported a 22 percent rise in profits during fourth quarter 2009 on Thursday, from $3.8 billion a year ago to $4.63 billion, but 4Q09 wasn’t all good news for the Bentonville behemoth. U.S. same-store sales, an important metric in the retail world, dropped 1.6 percent (excluding gasoline)–down 2 percent at regular Wal-Marts and down 0.7 percent at Sam’s Clubs, compared with the same quarter last year.

As the economy improves, it seems that some of Wal-Mart’s new shoppers are edging back toward their previous, slightly less price-conscious buying habits. It might be especially galling for Wal-Mart that Target Corp. recently reported improving U.S. same-store sales.

Wall Street seemed pleased on Thursday (before it heard about what the Fed was up to), with the Dow Jones Industrial Average up 83.66 points, or 0.81 percent. The S&P 500 advanced 0.66 percent and the Nasdaq gained 0.69 percent.