Fed to Hold on Low Rates for Two Years, Admits Weakening Rebound

Under the intense scrutiny of world markets days after the United States’ embarrassing credit downgrade, officials emerged from the latest Federal Reserve monetary policy meeting pledging to keep interest rates low and stay the course on its Treasury securities. However, Chairman Ben Bernanke and company failed to unveil any new programs to help out the stalled economy, which the Fed finally admitted has been significantly slower in rebounding than predicted even as recently as six weeks ago.

The Fed’s Federal Open Market Committee held interest rates at a range between 0% and 0.25%. Additionally, the FOMC uncharacteristically gave a time range for keeping rates low of through mid-2013, hoping to ease concerns of the business sector. Previously, the FOMC fell back on statements of keeping rates low “for an extended period.” The FOMC opted to continue its “existing policy of reinvesting principal payments from its securities holdings.”

Without making mention of the Standard and Poor’s rating decrease, the FOMC noted economic growth was not likely to increase in rapid fashion anytime soon. It looked at long-term factors such as the unemployment rate and poor housing prices as well as more temporary problems such as supply-line disruptions tied to the Japanese earthquake/tsunami disaster as the main hurdles to a hot recovery period.

“The Committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting…Moreover, downside risks to the economic outlook have increased,” the Fed’s statement noted. “The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further.  However, the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.”

Brian Shappell, NACM staff writer

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