On Wednesday, the Federal Reserve announced that it would maintain short-term interest rates near zero for the next 18 months in an effort to spur economic growth. This move comes after a two-day policy committee meeting and the subsequent publication of the committee’s plans and predictions. The Fed admitted that the economy has expanded moderately recently, but cautions that jobs remain scarce, the housing sector is still depressed and Europe’s economic woes could undermine domestic recovery efforts.
The Fed anticipates that high unemployment and sluggish retail sales will still be in evidence by late 2014. Its economic growth forecast spells an incomplete recovery with up to a 2.7 percent increase for 2012, a 3.2 percent increase in 2013 and a 4 percent increase in 2014. (Based on information released by 11 of the committee members, near zero interest rates are not expected to continue beyond late 2014.) The Fed has also projected that unemployment will drop no lower than 8.2 percent this year, 7.4 percent by the end of next year and 6.7 percent by the close of 2014.
After the announcement, Federal Reserve chairman, Ben S. Bernanke restated the Fed’s intention to provide more transparency in its long-term goals, saying: “It’s important for us to say what we think and it’s important for us to provide the right amount of stimulus to help the economy recover from its currently underutilized condition.”
Dr. Ian C. Shepherdson, United States economist for High Frequency Economics, offers a cautionary note about broadly interpreting the most recent actions of the Fed in light of Bernanke’s short term status. (Bernanke’s term will end at the beginning of 2014.) Quoted in The New York Times (January 25, 2012), he said: “I wouldn’t feel bound by anything the previous chairman had done. And three years is a very, very long time.”
After the announcement yesterday, the Dow reversed a downward morning trend to finish up 81.21 points at 12,756.96.
Appelbaum, Binyamin. “Fed Signals That a Full Recovery Is Years Away.” The New York Times. 1/25/12. (1/25/12). http://www.nytimes.com/2012/01/26/business/economy/fed-to-maintain-rates-near-zero-through-late-2014.html?pagewanted=1&_r=1&emc=na
Goldfarb, Zachary A. ” Fed: Rates likely to remain near zero through 2014; inflation target set at 2%” Washington Post with Bloomberg. 1/25/12. (1/26/12). http://www.washingtonpost.com/business/economy/fed-rates-likely-to-remain-near-zero-through-2014/2012/01/25/gIQAvcujQQ_story.html
High Frequency Economics. “Ian Shepherdson Chief U.S. Economist – Bio.” (1/25/12). http://www.hifreqecon.com/Ian-Shepherdson.html
Washington Post with Bloomberg. “Federal Reserve Economic Estimates.” 1/25/12. (1/25/12.) http://www.washingtonpost.com/business/economy/federal-reserve-economic-estimates/2012/01/25/gIQA9ucZRQ_graphic.html