Fed Sticks With Easy Money, Would Take Drastic Inflation or Growth To Force Their Hand
The U.S. Federal Reserve has stuck to its commitment to keep the borrowing costs near zero for an "extended period."
The central bank expressed that the economic recovery was growing, despite its unanimous vote to keep the interest rates in a range of zero to 0.25 percent.
In a statement announcing the decision the Fed said it "continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period,"
Fed Chairman Ben Bernanke warned that the rising joblessness and scarce credit for many people and companies could hold back the recovery in the months ahead.
In an attempt the provide support for the mortgage lending and housing market, and to approve the conditions in the private credit market, the Fed will purchase about $175 billion of agency debt. This amount is below the maximum of $200 billion that it had planned to purchase.
Art Hogan, Jefferies Chief Market analyst for Jefferies told StreetInsider.com that the economy is on track to recovery with a 2.5 to 3 percent GDP growth in 2010. In the meantime he expects the value of the dollar to decrease, with commodity prices continuing to rise.
Hogan sees the Fed raising rates in the second-quarter of 2010.
"It will probably start off with a bang, with a move from 0.25 to 1 percent, and probably get to 2 or 2.5 percent by the end of the year (2010)," Hogan stated.
Hogan believes that the only ways that the rates could be raised sooner than the second quarter of 2010, would be drastic uptake in inflation or a dramatic growth in the economy.
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