Highlights of Federal Reserve actions Wednesday
Thursday, January 26, 2012
WASHINGTON (AP) — In an unusual burst of activity Wednesday, the Federal Reserve said it will probably keep interest rates low for nearly three years, provided an inflation target for the first time, updated its economic projections and began providing interest-rate forecasts.
Chairman Ben Bernanke held a news conference to explain it all.
Some highlights of the Fed’s actions:
— It pushed back the date for any likely increase in the interest rate it controls to late 2014 at the earliest. That’s roughly 18 months later than its previous forecast. It’s intended to assure businesses and consumers that they can keep borrowing cheaply.
— Bernanke cautioned that late 2014 is merely the Fed’s “best guess” as to when it might have to start raising rates. Its timetable is subject to revision, he said. The Fed has limited ability to forecast out as far as three years, he added.
— The change in its rate forecast shows the Fed expects the economic recovery to remain slow. It lowered its estimate of the economy’s growth this year to up to 2.7 percent, compared with up to 2.9 percent estimated in November. That’s barely enough to reduce the unemployment rate, which the Fed estimates could fall as low as 8.2 percent this year. It’s now 8.5 percent.
— The Fed said after a two-day meeting that inflation is “subdued” and likely to remain in check. That gives it room to take further steps to support growth, such as buying more Treasury bonds or other assets. Such purchases help keep interest rates low.
— The Fed’s tepid outlook for the economy may lead it to do more to try to help. It said it’s prepared to adjust its investments, if necessary, to strengthen the recovery.
— Bernanke noted some encouraging recent data, such as better hiring and rising consumer confidence. But they haven’t been enough to suggest the U.S. recovery is accelerating. He pointed to Europe’s debt crisis, which is slowing the global economy and likely to drag on U.S. growth.
— For the first time, the Fed provided an official target for inflation — 2 percent. It didn’t set a formal target for unemployment. But it said unemployment of between 5.2 percent and 6 percent would be consistent with a healthy economy.
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