Today, the Federal Reserve cut its growth forecast and raised estimates it publishes for future expected unemployment rates. Partly because of these revisions the Fed has decided to hold steady its key borrowing interest rate, the Federal Funds rate, at the existing range of 0% to 0.25%. While inflation has continued to increase (most recent estimates were 3.9% annually) the Fed has been reluctant to tighten because of persistently high unemployment rates and sluggish growth.
Fed Chairman Ben Bernanke reaffirmed the intent to hold rates close to zero until the middle of 2013- a type of public promise that is historically very unusual for the Federal Reserve. Bernanke also reiterated the decision to continue its operation “Twist” that is designed to flatten the interest rate curve by lowering rates affected by long-term treasuries and mortgage-backed securities, thus maintaining a borrowing environment that is very accommodative to consumers.
This message from the Fed should make everyone think more about their growth outlook for investment portfolios, employment income, and other wealth creation mechanisms. What can we count on in the future with a continually slowing recovery and tireless challenges worldwide?
