InvestmentsFeb 19 2015

US Federal Reserve to keep interest rates lower “for longer”

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US Federal Reserve to keep interest rates lower “for longer”

The Federal Reserve has indicated that it is likely to keep interest rates lower “for a longer time”, according to the minutes of its January meeting.

The Federal Open Market Committee (FOMC) acknowledged that data received since its December meeting suggested that economic activity was “expanding at a solid pace” but it pointed out that inflation has declined further below its longer run objective, reflecting the declines in energy prices.

The minutes said: “Many participants indicated that their assessment of the balance of risks associated with the timing of the beginning of policy normalisation had inclined them toward keeping the federal funds rate at its effective lower bound for a longer time.”

It showed that the Committee also discussed the “communications challenges” associated with signalling the start of monetary policy normalisation.

The FOMC said: “Many participants regarded dropping the ‘patient’ language in the statement, whenever that might occur, as risking a shift in market expectations for the beginning of policy firming toward an unduly narrow range of dates.

“As a result, some expressed the concern that financial markets might overreact, resulting in undesirably tight financial conditions.”

During the meeting, the Committee highlighted China’s slowing growth and the “continuing risks” to the international economic outlook, including “tensions” in the Middle East and Ukraine, and financial uncertainty in Greece.