US Federal Reserve pledges to keep interest rates low

America's national debt of $12 trillion must be cut, says Timothy Geithner

The Federal Reserve vowed once again to keep US interest rates at rock-bottom levels for "an extended period" while it waits to measure the strength and sustainability of the economic recovery.

The members of the Federal Open Market Committee, in their latest statement, maintained language that has become a touchstone for the credit markets. Traders parse each new statement for clues as to the timing of the first interest rate hikes, but yesterday's update suggests no change for much of the rest of this year, at least.

The committee opted to hold the target federal funds rate in the zero-0.25 per cent range it first set in December 2008, in the wake of that autumn's financial panic. "Economic conditions, including low rates of resource utilisation, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period," it said. Consumer and business spending has been picking up, it explained, but the economy was still weak, employers were reluctant to create new jobs, and the construction industries remained depressed.

But one member of the committee, Thomas Hoenig, dissented from the decision, saying the phrase "an extended period" should be taken out because exceptionally low rates were causing imbalances in the economy.

Credit markets continue to expect very low interest rates in the short-term and then substantial hikes over the next few years. This has helped to restore profitability to the banking system, which borrows at short-term rates and lends out at higher long-term rates.

The steep yield curve in part reflects some investors' concern about future inflation in the US, which economists say could be one way of reducing the burden of the US government's record borrowing requirements.

Congressmen were tackling the issue of the public finances at a House appropriations committee hearing yesterday, and Tim Geithner, the US Treasury Secretary, agreed that the country must turn to tackling a national debt that has already topped $12 trillion.

"Deficits matter," he said. "Ours are too high. They are unsustainable and the American people along with investors around the world need to have more confidence in our ability to bring them down over time. What people who look at our country – credit rating agencies, investors, Americans – what they look at is whether we have the political will to restore gravity to our fiscal position over time."

However, he batted away one lawmakers' suggestion that the US might one day lose its gold-plated AAA credit rating. "There's no way that's going to happen, Congressman," he said.

Moody's warned this week that the "distance-to-downgrade" of nations including the US had "substantially diminished". The economist Nouriel Roubini wrote yesterday that financial markets could still turn against US debt. "Bond-market vigilantes already have taken aim at Greece, Spain, Portugal, the UK, Ireland, and Iceland, pushing government bond yields higher. Eventually they may take aim at other countries – even Japan and the US – where fiscal policy is on an unsustainable path."

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Life and Style
Suited and booted in the Lanvin show at the Paris menswear collections
fashionParis Fashion Week
Arts and Entertainment
Kara Tointon and Jeremy Piven star in Mr Selfridge
tvActress Kara Tointon on what to expect from Series 3
Voices
Winston Churchill, then prime minister, outside No 10 in June 1943
voicesA C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
News
i100
News
An asteroid is set to pass so close to Earth it will be visible with binoculars
news
Arts and Entertainment
Benedict Cumberbatch has spoken about the lack of opportunities for black British actors in the UK
film
News
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Tax Assistant

Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...

Recruitment Genius: Outbound Sales Executive - OTE £25,000

£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Java Developer / J2EE Developer - Watford - £45,000 - £47,000

£45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...

Ashdown Group: Marketing Product Manager - (Financial Services) - SW London

£35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Day In a Page

Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

Celebrities call on David Cameron to take more Syrian refugees

One young mother tells of torture by Assad regime
The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

The enemy within

People who hear voices in their heads are being encouraged to talk back
'In Auschwitz you got used to anything'

'In Auschwitz you got used to anything'

Survivors of the Nazi concentration camp remember its horror, 70 years on
Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

Autumn/winter menswear 2015

The uniforms that make up modern life come to the fore
'I'm gay, and plan to fight military homophobia'

'I'm gay, and plan to fight military homophobia'

Army general planning to come out
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign

What the six wise men told Tony Blair

Months before the invasion of Iraq in 2003, experts sought to warn the PM about his plans. Here, four of them recall that day
25 years of The Independent on Sunday: The stories, the writers and the changes over the last quarter of a century

25 years of The Independent on Sunday

The stories, the writers and the changes over the last quarter of a century
Homeless Veterans appeal: 'Really caring is a dangerous emotion in this kind of work'

Homeless Veterans appeal

As head of The Soldiers' Charity, Martin Rutledge has to temper compassion with realism. He tells Chris Green how his Army career prepared him
Wu-Tang Clan and The Sexual Objects offer fans a chance to own the only copies of their latest albums

Smash hit go under the hammer

It's nice to pick up a new record once in a while, but the purchasers of two latest releases can go a step further - by buying the only copy
Geeks who rocked the world: Documentary looks back at origins of the computer-games industry

The geeks who rocked the world

A new documentary looks back at origins of the computer-games industry
Belle & Sebastian interview: Stuart Murdoch reveals how the band is taking a new direction

Belle & Sebastian is taking a new direction

Twenty years ago, Belle & Sebastian was a fey indie band from Glasgow. It still is – except today, as prime mover Stuart Murdoch admits, it has a global cult following, from Hollywood to South Korea
America: Land of the free, home of the political dynasty

America: Land of the free, home of the political dynasty

These days in the US things are pretty much stuck where they are, both in politics and society at large, says Rupert Cornwell
A graphic history of US civil rights – in comic book form

A graphic history of US civil rights – in comic book form

A veteran of the Fifties campaigns is inspiring a new generation of activists
Winston Churchill: the enigma of a British hero

Winston Churchill: the enigma of a British hero

A C Benson called him 'a horrid little fellow', George Orwell would have shot him, but what a giant he seems now, says DJ Taylor
Growing mussels: Precious freshwater shellfish are thriving in a unique green project

Growing mussels

Precious freshwater shellfish are thriving in a unique green project