October 21, 2014
Fed says to keep rates low even after economy regains health
The Federal Reserve today said it could keep interest rates unusually low even after the U.S. job market returns to full strength and inflation rises to the central bank's target.
In announcing its view on future rates after a two-day policy meeting, it also dropped a set of guideposts it was using to help the public anticipate when it would finally start bumping overnight borrowing costs up from zero.
It said, however, that dropping a promise to hold rates steady "well past the time" the U.S. unemployment rate falls below 6.5 percent did not indicate any change in its policy intentions. Rather than relying on unemployment and inflation thresholds to guide expectations, it said would lean on a wide range of economic indicators in making its decision.
But what stood out in the central bank's statement was its embrace of easy money policies even after the Fed achieves its goals of full employment and 2 percent inflation.
"Economic conditions may, for some time, warrant keeping the target federal funds rate below levels the committee views as normal in the longer run," the Fed's policy panel said after its first meeting chaired by Janet Yellen.
Yellen, who took the helm of the central bank on Feb. 1, is set to hold a news conference at 2:30 p.m. (1830 GMT).
US stock prices fell after the statement was released, while yields on US government debt rose.
The central bank also proceeded with its well-telegraphed reductions to its massive bond-buying stimulus, announcing it would cut its monthly purchases of US Treasuries and mortgage-backed securities to $55 billion from $65 billion.
Minneapolis Fed President Narayana Kocherlakota dissented, saying that dropping the threshold could hurt the credibility of the Fed's commitment to return inflation to 2 percent.