Fed says interest rates will remain low for a long time

A press release by the US Federal Reserve said that it will be keeping interest rates for a longer period of time, but not as low as what Wall Street had expected.

According to USA Today, low interest rates had been seen as the solution to the beleaguered economy and a deflation threat in the US. The report explained that the policy to keep the interest rates at close to zero allows the Fed to provide a much-needed jolt to the economy despite reducing its original monthly purchase of securities from $65 billion last month to $55 billion.

The key fed funds rate, said USA Today, were slightly higher than Wall Street expectations, to 1% by the end of 2015 and 2.25 by 2016 year-end.

Despite the difference, Chief Investment Officer Krishna Memani of Oppenheimer Funds said about the rates, "Those are very modest rate increases. The Fed's policy objective still very, very accommodative."

In terms of its short-term rates, the Fed said it will retain the rates until unemployment rate drops below 6.5% as long as inflation is still under 2%. In the statement, the Fed expressed its concerns about the job market. Nonetheless, the Fed, under the leadership of Chairwoman Janet Yellen, expressed their optimism of the economy with their new measures to the monetary policy.

"The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace and labor market conditions will continue to improve gradually, moving toward those the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for the economy and the labor market as nearly balanced. The Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance, and it is monitoring inflation developments carefully for evidence that inflation will move back toward its objective over the medium term," the Fed's statement read.

Tags

US Federal Reserve, US Federal Reserve monetary policies, US Federal Reserve monthly securities purchases

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