Yahoo Finance Federal Reserve signals rates steady to 2014
The U.S. Federal Reserve's policymakers Tuesday repeated their pledge to keep short-term interest rates at a record low of near zero until at least late 2014.
The announcement followed the regular one-day meeting of the Bank's monetary policy committee and was widely expected.
The Fed offered a more positive view of the economy, but held off taking further steps to boost the recovery.
It noted that the unemployment rate has declined notably and should continue to fall. It also said strains in the global financial markets have eased, though it warned they continue to pose a threat.
The Bank said that while prices of crude oil and gasoline will push up inflation temporarily, longer-term inflation should remain stable.
The statement was approved on a 9-1. Atlanta Fed President Jeffrey M. Lacker dissenting for the second straight meeting.
The announcement said Lacker doesn't "anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate through late 2014," indicating Lacker's concerned that a continued loose money policy will lead to inflation.
Although the American job market has created more than a half million jobs since January, the U.S. central bank can’t be sure that burst of strength will last long enough for it to soon scale back its support for the economy.
The unemployment rate remains historically high at 8.3 per cent. That prompted Fed chairman Ben Bernanke in testimony to Congress last month to observe that "the job market remains far from normal."
Keeping interest rates low is intended to encourage consumers and businesses to borrow and spend more. Lower yields also lead some investors to shift money out of bonds and into stocks.
Eventually, the Fed will feel compelled to raise rates to curb inflation as the economy heats up. But some analysts think it is reluctant to signal an eventual shift toward higher rates before it's close to a change.
Signalling a change too soon might cause investors to push interest rates up before the Fed is sure the economic recovery will last.
"It would be extremely damaging if they changed their message right now," said Brian Bethune, an economics professor at Amherst College. "It would reverberate across financial markets."
