Fed to hold rates at near-zero until 2014
Share
The US Federal Reserve has surprised the markets by confirming that it does not expect to increase key interest rates until late 2014.
In its statement for the January 24 and 25 monetary policy meeting, the central bank’s Federal Open Market Committee says “significant downside risks” can be seen for the US economy, with many of these being the result of strains in global financial markets.
Furthermore, the bank cut its economic growth forecast slightly. It now expects the economy to expand by 2.2% to 2.7% over 2012, down from its November estimate of 2.5% to 2.9%.
The committee voted to maintain key interest rates in a target range of zero to 0.25% and indicated they will be held at this low level for longer than previously expected.
“Economic conditions – including low rates of resource utilisation and a subdued outlook for inflation over the medium run – are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014,” the statement says.
The Fed’s previous guidance had indicated that key rates would remain low until mid-2013.
In addition to the usual statement, the committee published interest rate forecasts of individual members, which show three of the 17 think rates should rise by the end of 2012.
Six of the committee’s members expect rates to have been lifted from near-zero by the close of 2013, while 11 anticipate this happening by the end of 2014. Over the longer run, all members aside from one expect rates to be at 4% or above.
To receive more relevant articles like this one, why not sign up to our briefings and breaking alerts by clicking here and Follow @fundweb
