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Wednesday, January 25, 2012

Federal Reserve Keeps Interest Rates At All Time Low Until 2014







Fed unlikely to raise rates until at least 2014

The Federal Reserve said Wednesday that it is unlikely to raise interest rates before late 2014, extending a period of record-low rates by more than a year.

The Fed says it is keeping rates low to help lift a weak but modestly growing economy.

The new timeframe hints at details in the Fed's quarterly economic forecast, which will be released later. That will show in what year policy

members expect the first increase in the Fed's benchmark interest rate. The Fed has kept its key interest rate at a record low near zero for three years.

In a statement released after its two-day meeting, the Fed said the economy is growing moderately, despite some slowing in global growth. It held off on any other new steps to boost the economy.

The statement was approved on a 9-1 vote. Jeffrey Lacker, president of the Richmond regional Fed bank, dissented, saying he objected to the new time period.

The extended timeframe is a shift from the Fed's previous plan to keep the rate low at least until mid-2013. The change is intended to reassure consumers and investors that they will be able to borrow cheaply well into the future. And some economists said it could lead to further Fed action to try to invigorate the economy.

The forecast on interest rates will be released along with the Fed's updated projections for economic growth, unemployment and inflation. Fed Chairman Ben Bernanke will discuss the forecasts and Fed policy at a news conference later Wednesday.

Beyond the adjusted outlook for interest rates, the January statement tracked closely to the Fed's previous comments about economic conditions.

The central bank used the same language in describing Europe's debt problems and the impact on the world economy.

The economy is looking a little better, according to recent private and government data. Companies are hiring more, the stock market is rising, factories are busy and more people are buying cars. Even the home market is showing slight gains after three dismal years

Still, the threat of a recession in Europe is likely to drag on the global economy. And another year of weak wage gains in the United States could force consumers to pull back on spending, which would slow growth.

The Fed has taken previous steps to strengthen the economy, including purchases of $2 trillion in government bonds and mortgage-backed securities to try to cut long-term rates and ease borrowing costs.

The idea behind the Fed's two rounds of bond buying was to drive down rates to embolden consumers and businesses to borrow and spend more. Lower yields on bonds also encourage investors to shift money into stocks, which can boost wealth and spur more spending.

Some Fed officials have resisted further bond buying for fear it would raise the risk of high inflation later. And many doubt it would help much since Treasury yields are already near historic lows. But Bernanke and other members have left the door open to further action if they think the economy needs it.



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Sources: Associated Press, Bloomberg News, CNN, Google Maps

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