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
Voices
Barn owls are among species that could be affected
charity appeal
Sport
After another poor series in Sri Lanka, Alastair Cook claimed all players go through a lean period
cricketEoin Morgan reportedly to take over ODI captaincy
Life and Style
food + drink
Voices
John Profumo and his wife Valerie Robson in 1959
voicesWard committed no crime, and the truth is still being covered up, writes Geoffrey Robertson QC
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
news... you won't believe how bad their skills were
News
people

Arts and Entertainment
Mark Wright and Mark Wright
tvStrictly goes head-to-head with Apprentice
Sport
footballPremier League preview: All the talking points ahead of this weekend's clashes
News
i100
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

Sheridan Maine: Commercial Finance Manager

Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Sheridan Maine: Regulatory Reporting Accountant

Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...

Ashdown Group: Marketing Services Manager - (communications, testing, DM)

£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...

Guru Careers: Finance Account Manager

£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...

Day In a Page

Homeless Veterans appeal: 'You look for someone who's an inspiration and try to be like them'

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Could cannabis oil reverse the effects of cancer?

Could cannabis oil reverse effects of cancer?

As a film following six patients receiving the controversial treatment is released, Kate Hilpern uncovers a very slippery issue
The Interview movie review: You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here

The Interview movie review

You can't see Seth Rogen and James Franco's Kim Jong Un assassination film, but you can read about it here
Serial mania has propelled podcasts into the cultural mainstream

How podcasts became mainstream

People have consumed gripping armchair investigation Serial with a relish typically reserved for box-set binges
Jesus Christ has become an unlikely pin-up for hipster marketing companies

Jesus Christ has become an unlikely pin-up

Kevin Lee Light, aka "Jesus", is the newest client of creative agency Mother while rival agency Anomaly has launched Sexy Jesus, depicting the Messiah in a series of Athena-style poses
Rosetta space mission voted most important scientific breakthrough of 2014

A memorable year for science – if not for mice

The most important scientific breakthroughs of 2014
Christmas cocktails to make you merry: From eggnog to Brown Betty and Rum Bumpo

Christmas cocktails to make you merry

Mulled wine is an essential seasonal treat. But now drinkers are rediscovering other traditional festive tipples. Angela Clutton raises a glass to Christmas cocktails
5 best activity trackers

Fitness technology: 5 best activity trackers

Up the ante in your regimen and change the habits of a lifetime with this wearable tech
Paul Scholes column: It's a little-known fact, but I have played one of the seven dwarves

Paul Scholes column

It's a little-known fact, but I have played one of the seven dwarves
Fifa's travelling circus once again steals limelight from real stars

Fifa's travelling circus once again steals limelight from real stars

Club World Cup kicked into the long grass by the continued farce surrounding Blatter, Garcia, Russia and Qatar
Frank Warren column: 2014 – boxing is back and winning new fans

Frank Warren: Boxing is back and winning new fans

2014 proves it's now one of sport's biggest hitters again
Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas