The Federal Reserve plans to keep a key interest rate at a record low to support a U.S. job market that’s improving but still isn’t fully healthy and to help boost unusually low inflation. As expected, it’s also ending a bond purchase program that was intended to keep long-term rates low.
The Fed on Wednesday reiterated its plan to maintain its benchmark short-term rate near zero ‘for a considerable time’.
Most economists predict it won’t raise that rate before mid-2015. The Fed’s benchmark rate affects rates on many consumer and business loans. In a statement ending a policy meeting, the Fed noted that the job market is strengthening. The statement drops a previous reference to ‘significant’ in referring to an ‘underutilisation’ of available workers.
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Instead, the Fed said the excess of would-be job holders is ‘gradually diminishing’. It also noted solid hiring gains and a lower unemployment rate, now 5.9 per cent. One of the Fed’s major goals is to achieve maximum employment, which it defines as an unemployment rate between 5.2 per cent and 5.5 per cent.
The Fed repeated previous language that the likelihood of inflation running persistently below its 2 per cent target rate has diminished, even though inflation is being restrained by lower energy prices and other factors.
Investors responded to confirmation that the Fed would end its bond-buying program by positioning themselves for higher rates. Stocks sold off, and the dollar rose against other currencies. Bond yields rose, and the price of gold fell. — AP
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