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Breaking: Fed Extends Predicted Period of Historically Low Rates

Though the Federal Reserve’s voting membership noted statistics indicate a moderate expansion, an improvement over the slight upticks or stagnation found in 2011, all but one of its members appear somewhat interested in extending the low level of the federal funds rate to a date even further into the future than previously indicated.

As expected Tuesday, the Fed’s Federal Open Market Committee left the target for the federal funds rate untouched at a range between 0% and ¼%. However, the committee now suggests that such a low level likely will be held through late 2014, the latest predicted date for leaving the rate untouched. The Fed intimated the move was tied to subdued inflation levels, aside from oil/gasoline pricing, among other reasoning:

“The committee expects moderate economic growth over coming quarters and consequently anticipates that the unemployment rate will decline gradually toward levels that the committee judges to be consistent with its dual mandate. Strains in global financial markets have eased, though they continue to pose significant downside risks to the economic outlook. The recent increase in oil and gasoline prices will push up inflation temporarily, but the committee anticipates that subsequently inflation will run at or below the rate that it judges most consistent with its dual mandate…[the committee] anticipates that economic conditions--including low rates of resource utilization 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.”

Inflation hawk Jeffrey Lacker was the only FOMC member to publicly oppose opposing holding the target rate so low for the better part of 2 ½ more years. The Fed also announced intentions to continue its policy on purchasing and holding Treasury securities, despite calls from some experts in recent months to abandon the practice.

Brian Shappell, NACM staff writer