Tuesday, August 09, 2011

Federal Reserve to keep printing money through 2013

The Federal Reserve pledged to keep interest rates very low for two more years after a policy meeting Tuesday in an effort to try to bolster the flailing U.S. economy.

Even as it acknowledged that “economic growth so far this year has been considerably slower” than Fed leaders had expected, the central bank’s policy committee gave no indication that it will launch any major new programs to try to combat the weakening economy and financial markets. It said only that it is “prepared to employ” other tools to support the economy “as appropriate.”

And even the modest step of promising to keep very low interest rates in place through summer 2013 provoked sharp internal disagreement: Three members of the Fed’s policy committee dissented, the most to do so since 1992.

U.S. stocks dipped after the announcement but quickly recovered, surging back into positive territory and ending the day with solid gains. But the Dow Jones industrial average, the Standard & Poor’s 500 index and the tech-heavy Nasdaq fell far short of recouping Monday’s dramatic losses, when they shed a total of about $1.2 trillion in value.

By explicitly stating the central bank’s easy money policies — specifically, a short-term interest rate target near zero — for two more years, the Fed is hoping to lower interest rates throughout the economy to encourage immediate investment and consumption. The Fed had previously said only that rates would remain low for an “extended period,” which was widely taken to mean a few months.
Read the rest here.

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