Fed: We won’t increase ultra-low interest rates until late 2014
THE GLOBAL economy is so weak and US growth so anaemic that interest rates are unlikely to rise until late 2014, the Federal Reserve announced last night.
Markets rose on the “highly accommodative” policy announcement, buoyed by the promise of cheap money for years to come. The Dow Jones rose 0.38 per cent, the Standard & Poor’s 100 jumped 0.53 per cent, and gold broke the $1,700 mark, rising 2.14 per cent in the day.
Slowing global growth, falling business investment and the weak housing market, combined with below-target inflation forecasts mean there is room for further loosening, the Fed said.
As a result, Operation Twist will continue, with the central bank increasing the average maturity of its bond holdings to push down long-term interest rates further.
For the first time ever the outlook of each member of the Federal Open Markets Committee was made public. Two of the 17 members believe rates should stay low until 2016, and three want no rise before 2015.
However, not all analysts believe this new transparency is beneficial.
“In the future it might regret this decision to publish forecasts – at times the ability to surprise markets is important,” argued Lombard Street Research’s Dario Perkins.