Fed Keeps Rate At Rock Bottom, No Changes Likely Until 2014
Jan 25th, 2012 @ 2:17 PM by Amber Nelson
After its two day meeting, the Federal Reserve decided to leave its target interest rate unchanged, and also forecasted that it will not raise rates until the end of 2014.
The federal funds rate, the Fed’s main method of affecting inflation and the economy, will remain in the range of zero to 0.25 percent for at least the next six weeks. It was predicted in a statement that, “Economic conditions…are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”
Low Fed rates have kept mortgage, car and student loan rates exceptionally low for the past several years, although the Fed has also initiated a program called ‘Operation Twist,’ a plan for buying up mortgage-backed securities, in order to also bring mortgage rates down and spur housing market activity.
Notwithstanding “the economy has been expanding moderately,” and the current rate decision was motivated by “some slowing in global growth.” The Fed added that:
“While indicators point to some further improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment has slowed, and the housing sector remains depressed. Inflation has been subdued in recent months, and longer-term inflation expectations have remained stable.”
In its newly released forecast for the economy, the central bank was more optimistic about the labor market than it had been in November. At its January meeting, it predicted that the unemployment rate will decrease to somewhere between 8.2 percent and 8.5 percent in 2012, but its forecast for GDP was less rosy. The Fed now believes that the economy will grow between 2.2 percent and 2.7 percent this year.
“We continue to see headwinds emanating from Europe, coming from the slowing global economy and some other factors as well,” Fed Chairman Ben Bernanke said in a press conference Wednesday afternoon.
He was quick to point out that these forecasts and rate decisions are not set in stone and can be altered based on economist movements.
“Our ability to forecast three and four years out is obviously very limited. There’s no question about that,” Bernanke said.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.