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Nat Criss' Blog

By Nat Criss | Other/Just Looking in Wilmington, NC

FOMC Steadfast on Holding Interest Rates Down Through 2014

Even though the housing market is showing signs of improvement, the Federal Open Market Committee, or FOMC, remains steadfast in its plan to hold interest rates down through 2014. Rates have been kept low since 2008; however, economic growth has been very sluggish. The Fed reaffirmed its plans in August to keep the target rate of funds between 0% and 0.25% over the next two years. A FOMC spokesperson stated, "Inflation has been "subdued in recent months, and longer-term inflation expectations have remained stable."

Many in the field of economics and finance expected the announcement. One of the chief strategists for Janny Capital Markets, Guy LeBas reflected on the news with the comment, "It's dovish in the sense that it's designed to boost economic growth without concern of inflation, I think it reinforces the Fed's philosophy of providing economic support at any cost."

Economists predict that the economy will continue to grow very gradually, which means the unemployment rate will also be improving more slowly. Having low interest rates will increase the buying power of those experiencing financial difficulties.

In conjunction with the central bank, the Fed is also continuing its "Operation Twist", which uses principal payments from its holdings of agency debt along with securities that are mortgage-backed. The funds are then accessed to purchase more agency mortgage bonds. It is a program aimed at getting unemployed Americans back to work. Committee members explained the reasoning behind these measures with the acknowledgement that, "household spending has been rising somewhat, but economic growth will remain only moderate "over the coming quarters and then pick up very gradually."

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