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September 20, 2014

Fed Renews Vow to Keep Interest Rates Low

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Fed Renews Vow to Keep Interest Rates Low

The Fed voted this week to continue its near-zero interest rate policy for the next quarter and likely much longer. The move will keep mortgage rates low in the coming months, if not years. 

In recent weeks, mortgage rates have hovered around record lows, which has helped increase home buyer purchasing power as well as helped refinancers trim their monthly mortgage payments.

Last summer, the Fed made a rare move in vowing to keep the key rate near zero through late 2014. The move has been criticized by some who say it will cause inflation and awards spenders, not savers. Critics have pushed the Fed to reverse its policy. 

However, the Fed says the subdued outlook for inflation has not warranted a change in its policies. 

Federal Reserve Chairman Ben Bernanke, following the Fed’s policy-making committee meeting this week, affirmed the Fed’s intention to continue keeping short-term interest rates down until late 2014—and possibly even longer. 

The Fed has kept short-term interest rates near zero since late 2008. The Fed has also acted to reduce long-term rates by purchasing Treasury securities and mortgage bonds. 

The Fed’s policy-making committee also released its economic forecast, projecting moderate economic growth in the coming months before a steady pick up, as well as a gradual drop in unemployment. The committee also projects for inflation to remain under control, despite the recent rise in oil prices. 

“If there’s a substantial change in the economic outlook in either direction, then there would be a change in the outlook,” Bernanke said. “But for now, I think the committee is comfortable.”

Source: “Fed to Keep Interest Rate Near Zero for Extended Period,” HousingWire (April 25, 2012) and “Fed Cuts U.S. Growth Forecast for 2013 and 2014,” The New York Times (April 25, 2012)

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