Fed Promises Low Interest Rates for 2 Years

Finance | August 10, 2011, Wednesday // 00:33|  views

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The US Federal Reserve declared Tuesday that it will keep interest rates low for at least two years, bringing disappointment to the markets amidst expectations for more tangible action on its part.

In addition to pledging interest rates near zero for the next 2 years, the US central bank popularly known as the Fed also stated it was ready for more direct action, and could employ further tools to stimulate growth.

Three officials voted against the decision to promise the low interest rates until mid-2013.

The Fed's decision comes in a moment on intensified turmoil on financial markets with growing concerns about heightened risks to the global economy after a recent downgrade of US debt, combined with worries that EU efforts to put a safety net under heavily indebted Italy and Spain may not prove sufficient to avert wider credit market disruptions.

The decision the Fed made Tuesday has been described in a NYT editorial as "half-measures".

On Tuesday, the Fed also said America's economic growth was proving considerably weaker than expected, suggesting inflation will remain contained for the foreseeable future, as cited by international media.

"The committee currently anticipates that economic conditions -- including low rates of resource utilization and a subdued outlook for inflation over the medium run -- are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013," the Fed said.

Fed's forecast for a growth rate of the US economy of between 2.7% and 2.9% in 2011 has started to be viewed increasingly as over-optimistic, according to analysts.

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Tags: Fed, US, USA, Federal Reserve, interest rates, euro zone, Italy, Spain, debt crisis


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