Fed pushes out low rate pledge to late 2014

The Federal Reserve announced today that they pledge to hold interest rates until late 2014. Many experts also believe that the Fed will soon launch another round of quantitative easing in the form of asset purchases with printed money.

By Greg Robb
Jan. 25, 2012, 12:31 p.m. EST
MarketWatch

WASHINGTON (MarketWatch) — The Federal Reserve on Wednesday, opening a new era of transparency, pledged to hold rates low until late 2014.

The new commitment replaces the statement that economic conditions were likely to stay at the historic low range of 0% to 0.25% until at least mid-2013.

The Fed made no policy steps, leading the Fed’s key interest rate where it has been for three years.

In making the new projection, the central bank said the low rate of resource utilization and the subdued outlook for inflation over the medium term are likely to warrant the low rates for almost two more years.

The Fed made few changes to its description of the economic outlook. It said the economy was expanding at a moderate pace. While the labor market has improved, the unemployment rate remains elevated.

“To support a stronger economic recovery and help ensure that inflation, over time, is at levels consistent with the dual mandate, the FOMC expects to maintain a highly accommodative stance for monetary policy,” the statement said.

There was one dissent. Richmond Federal Reserve Bank President Jeffrey Lacker wanted to omit the description of the time period “over which economic conditions are likely to warrant exceptionally low levels of the federal funds rate.”

Later Tuesday, the Fed will release details of its interest-rate projections.

Fed Chairman Ben Bernanke will also hold a news conference.

The Fed made no changes to its Operation Twist plan designed to put pressure on long-term rates by selling $400 billion of short-term debt and buying longer-term securities to lengthen the average maturity of securities on its balance sheet.

The consensus of Fed watchers believe the Fed will soon launch another round of asset purchases with printed money, or quantitative easing

Some economists think this QE3 could come as early as the next FOMC meeting on March 13.

The Fed will provide an explicit discussion of FOMC member’s expectations for the balance sheet when the minutes to this meeting are released on Feb. 15.

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