Tags: Fed | Rates | Low | Longer

WSJ: Fed May Keep Rates Low Even Longer Than Thought

Friday, 23 Dec 2011 12:27 PM

The Federal Reserve has said it will keep interest rates low through 2013 but now, the U.S. central bank may keep them near zero for even longer than thought and into 2014, The Wall Street Journal reports.

Fed officials have said they may consider revamping their communications strategies.

The Fed currently predicts when it will meet to set interest rates but doesn't say when it might consider changes to rates.

"When the Fed revises its communications approach, there is a good chance it will cease offering a fixed date for the timing of rate increases. Instead, officials could signal their intentions by publishing a range of their forecasts for rates along with their quarterly economic projections," the Journal reports.
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"Some officials see this approach as one that would be easier to update and would better link the Fed's guidance with its outlook for the economy."

bernankegetty200v8.jpg
Fed Chairman Ben Bernanke
(Getty Images photo)
In an unprecedented move in August, the Federal Reserve said interest rates will stay low through 2013, although Fed Chairman Ben Bernanke has reportedly grown uneasy with that forecast by tweaking his language to suggest low interest rates will stay put "at least" through 2013.

Market watchers agree all that means communications changes are coming.
Economist Michael Feroli at JPMorgan Chase says the Fed will release interest-rate forecasts at its Jan. 25 meeting showing rates will start to rise only in the final quarter of 2014.

"That could lift markets and the economy a little, but it wouldn't be the big surprise we got in August," he tells The Wall Street Journal.

By adopting a strategy of releasing more specific interest-rates forecasts, Fed officials can make adjustments on a more timely basis.

Interest rate predictions would be the latest a series of big moves from the Fed.

Since the recession, the Fed has cut its benchmark lending rate target, the fed funds rate, to 0.25 percent and has bought $2.3 trillion in Treasury instruments and mortgage-backed securities form banks to stimulate the economy in a process known as quantitative easing.

The Fed has also reshuffled the duration of its Treasury holdings to keep long-term interest rates low and today, Bernanke holds press conference with reporters to discuss policy.

Some experts expect even more quantitative easing to follow, as more extraordinary policies are needed to spark life in an economy that refuses to pick up the pace of its pre-recession levels.

"Europe is going to be a big headache for quite a while," says Diane Swonk, chief economist at Mesirow Financial, according to the Associated Press.

"We are going to have a lot of icebergs to dodge, and if the situation dramatically deteriorates, the Fed will act."

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The Federal Reserve has said it will keep interest rates low through 2013 but now, the U.S. central bank may keep them near zero for even longer than thought and into 2014, The Wall Street Journal reports. Fed officials have said they may consider revamping their...
Fed,Rates,Low,Longer
1946
2011-27-23
Friday, 23 Dec 2011 12:27 PM
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