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By Manu Kapoor | Broker in Queens, NY

Fed Extends Expectations for Low Rates Through 2014

Fed Extends Expectations for Low Rates Through 2014

The Federal Reserve said Wednesday that it will hold a key benchmark interest rate near zero through late 2014.

The setting of this federal funds rate – the rate at which banks lend to one another – is one of the most fundamental and principal tools in the central bank’s chest of economic influence.

The Fed has kept the target range for the rate at 0 to 0.25 % for three years now. The decision by its policy committee members to maintain this range for another three years is testament to just how slow the U.S. economy’s crawl back from the brink of financial ruin is likely to be.

Up until Wednesday, the Fed’s policy statement had indicated the federal funds rate would remain at its current level until mid-2013.

Fed Chairman Ben Bernanke acknowledged that the 2014 projection for keeping the rate so low is not set in stone. The decision to raise the rate before that time would be determined by the pace of economic growth.

“We have to make a best guess,” Bernanke told reporters at a press conference following the Fed’s two-day policy meeting. “Unless there is a substantial strengthening of the economy in the near term, I would think that it’s a pretty good guess that we will be keeping rates low for some time from now.”

Members said they expect economic growth over the coming quarters to be modest, and as a result, they anticipate the unemployment rate will decline only gradually.

Projections released by the Fed committee at the conclusion of the meeting show its members are generally anticipating the national unemployment rate to range between 8.2 and 8.5 % this year. Strains in global financial markets also continue to pose significant downside risks to the U.S. economic outlook, according to the Fed.

Analysts say the central bank’s assessment of current economic conditions and expectations going forward indicate a third round of ‘Quantitative Easing’ (QEIII) is not out of the question, and in fact very likely this year.

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