US Fed pledges two years of low rates

 
City A.M. Reporter
The US Federal Reserve has said it will keep its hefty monetary policy stimulus for at least another two years in an effort to support a flagging economy and fragile global markets.

It was unclear whether the decision, which involved no new committment of funds for bond purchases, would be enough to put a floor on a US stock market that has fallen more than 15 per cent in the last two weeks.

The Fed said US economic growth was proving considerably weaker than expected, suggesting inflation, which has already moderated recently, will remain contained for the foreseeable future.

Three officials, Richard Fisher of the Dallas Fed, Narayana Kocherlakota of Minneapolis and Charles Plosser of Philadelphia, voted against the move.

"The committee currently anticipates that economic conditions - including low rates of resource utilisation and a subdued outlook for inflation over the medium run - are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013," the US central bank said in a statement.

It also reiterated its policy of reinvesting the proceeds from bonds maturing in its portfolio, though it did not state a specific time frame for such actions.

The Fed's decision comes with financial markets in turmoil as worries escalate about heightened risks to the global economy after an embarrassing downgrade of US debt.

In addition, fears remain that European efforts to put a safety net under heavily indebted Italy and Spain may not suffice to avert wider credit market disruptions.

In an attempt to dampen market volatility, finance ministers and central bankers of the Group of Seven major world economies issued a statement on Sunday after a global telephone conference saying they were ready to act to ensure stability.

US stocks climbed ahead of the FOMC announcement but suffered their worst drop since the financial crisis this week.