The U.S. Federal Reserve Building in Washington (Bloomberg News) |
Reporting from Washington—
The Federal Reserve said Wednesday that it was likely to leave short-term interest rates at rock-bottom levels at least through late 2014, pushing out its easy-monetary policy even further into the future than previously indicated.In a statement at the end of its two-day meeting, policymakers at the central bank acknowledged the recent improvements in the economy but said that they expected “economic growth over coming quarters to be modest” and the unemployment rate, currently 8.5%, to decline “only gradually.”
The decision was what many analysts had expected.
The Fed committee repeated its concern that “strains in global financial markets” – short for troubles in debt-plagued Europe and elsewhere – “continue to pose significant downside risks to the economic outlook.”
Since August, the Fed had said it was likely to keep the federal funds rate, which broadly influences rates on loans for businesses and consumers, at near zero “at least through mid-2013.” Financial markets, however, most recently have been betting that the shift won’t happen until early 2014.
Later Wednesday, the central bank will issue a forecast of when individual Fed committee members see the shift in the federal funds rate. With the policy statement Wednesday, it’s clear most Fed officials said they don’t expect the first rate increase until at least 2014.
An interest-rate forecast is a historic step for the Fed, the latest in a series of moves under Chairman Ben S. Bernanke to increase transparency and communications with the public. Analysts said the new communications strategy also is aimed at giving the Fed some additional firepower to boost the still-weak economy.
A forecast predicting interest rates to remain low for a very long period could give markets greater reassurance and thus have the effect of pushing long-term interest rates even lower and encouraging more businesses and individuals to borrow and invest.
The committee’s statement as well as individual members' forecasts on interest rates, however, aren’t a firm commitment, as they are conditioned on the economic conditions and outlook.
In issuing the Fed's latest quarterly forecast for economic growth, unemployment and inflation, Bernanke will discuss the new forecasts and the economy Wednesday afternoon during a news conference that he began doing quarterly last year.
[Updated at 12:34 p.m. PST Jan. 25: Of the 17 committee members, 11 wanted the Fed to begin tightening in 2014 or later, with two saying 2016 would be right time to raise rates. Of the six who prefer a shift earlier than 2014, half said 2013 and the other half 2012.
On the economy, most Fed policy makers see economic growth this year of 2.2% to 2.7%, a slight downgrade from its previous forecast in November. Given that mediocre growth and the recent sharp drop in unemployment, to 8.5% last month, officials now expect little or no change in the jobless rate by year-end, with the rate dropping to as low as 7.4% at the end of next year. Inflation meanwhile is projected to stay at a subdued 2% or lower for the foreseeable future.]
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