US Federal Reserve pledges to keep interest rates low
America's national debt of $12 trillion must be cut, says Timothy Geithner
Wednesday 17 March 2010
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."
- 1 The truth about 'girl things': Three cheers for Heather Watson's honesty
- 2 Man who held up 'hire me' sign at Waterloo station returns a year later with 'I'm hiring' sign
- 3 UK weather: Snow to fall during coming week with sub-zero temperatures to last until early February
- 5 Men behaving badly: Urinating while standing, 'manspreading' and the gendering of selfishness
Man who held up 'hire me' sign at Waterloo station returns a year later with 'I'm hiring' sign
UK weather: Snow to fall during coming week with sub-zero temperatures to last until early February
Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
Iraq invasion 2003: The bloody warnings six wise men gave to Tony Blair as he prepared to launch poorly planned campaign
Ellen DeGeneres leads Johnny Depp, Gwyneth Paltrow and Paul Bettany in revealing game of Never Have I Ever
Nigel Farage: NHS might have to be replaced by private health insurance
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
French court convicts three over homophobic tweets, in case hailed as a 'significant victory' by LGBT rights campaigners
British Muslim school children suffering a backlash of abuse following Paris attacks
George Galloway condemns 'racist, Islamophobic, hypocritical rag' Charlie Hebdo at freedom of speech rally
Islamic history is full of free thinkers - but recent attempts to suppress critical thought are verging on the absurd
iJobs Money & Business
Negotiable: Recruitment Genius: A Tax Assistant is required to join a leading ...
£16000 - £25000 per annum: Recruitment Genius: This is an exciting opportunity...
£45000 - £47000 per annum + bonus + benefits: Ashdown Group: Java Developer / ...
£35000 - £38000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...