Wed, November 04, 2009
Federal Reserve Hints On When Interest Rates Will Rise
The Federal Open Market Committee (FOMC) left its Federal Funds rate unchanged in a range of zero to 0.25% today; it also gave a few hints as to what would need to happen before it starts raising interest rates.
In keeping with time-honored tradition, the financial markets pored over today’s FOMC statement for minute changes in wording from the previous one. Today’s official release still says that low interest rates will remain in place for “an extended period.” The fact that this wording didn’t change cheered the stock market.
Significantly, today the FOMC actually listed some of its reasons for keeping rates low:
The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.
So the Fed is waiting to see declining unemployment, higher inflation trends, and/or higher inflation expectations before it starts increasing rates. The magnitude of each trend will be important, of course, but the Fed has now signaled fairly specifically what it’s looking for.
