After meeting Nov. 3 and 4, Federal Reserve Chairman Ben Bernanke and the rest of the committee that sets interest rates made no move to signal that a rate increase is coming.
(Charles Krupa/AP)Photos (1 of 1)
When will Fed raise interest rates? Watch this phrase.
By Laurent Belsie | 11.05.09
Statements from the Federal Reserve are like eating oatmeal every morning: not terribly original. Granted, one doesn’t want the heirs of Milton Friedman to wax eloquent. Even so, the Fed has become awfully repetitious on one point.
On Wednesday, for the eighth time in a row, its Federal Open Market Committee said economic conditions “are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” (Translation: the Fed will keep interest rates at these historic lows for a long time.)
That’s a key phrase. The committee first used it last December, when it brought rates down to near zero. When the wording changes, analysts say, it will signal a first step in the central bank’s move to boost rates.
Even after a wording change, a rate hike would still be months away, next summer at the earliest, economists say. Pessimists say it could take years.
“If, as we fear, economic growth begins to slow again next year, as the boost from pent up demand and restocking fizzles out, then interest rates could stay at near-zero until 2012 or even beyond,” writes Paul Ashworth, an economist at Capital Economics, in an analysis.
Actually, the committee did make one small change to the sentence, specifying what economic conditions warranted such low rates: the current slack in the economy, subdued inflation, and stable inflationary expectations.
That wasn’t terribly enlightening. But at least it was a stab at freshening up the language.
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