Wednesday, January 25, 2012

It's The Economy Stupid: Fed Says It's Keeping Rates Low Till 2014

Bernanke wants to throw more money at the problem.  Says ‘inflation is going to remain below target’.  He obviously hasn’t bought bacon in the last year.   I like the part about ‘talking’ about inflation keeping it ‘firmly anchored’.  That’s a hoot. 


That’s like saying talking about sex prohibits ….  Well, you know where I am going with that one.





Wire: BLOOMBERG News (BN) Date: Jan 25 2012  13:43:58

Fed Says Key Interest Rate Will Stay Low Until Late 2014 (4)


By Craig Torres and Caroline Salas Gage

     Jan. 25 (Bloomberg) -- Federal Reserve officials said their

benchmark interest rate will stay low until at least late 2014

and anticipate that unemployment will remain high and inflation


     “The Committee expects to maintain a highly accommodative

stance for monetary policy,” the Federal Open Market Committee

said in a statement released in Washington today. “Economic

conditions -- including low rates of resource utilization and a

subdued outlook for inflation over the medium run -- are likely

to warrant exceptionally low levels for the federal funds rate

at least through late 2014.”

     The Fed extended its previous pledge to keep rates low at

least until the middle of 2013 as more than two years of

economic growth have failed to push unemployment below 8.5

percent. Fed officials in a separate statement today lowered

their forecasts for economic growth and inflation this year and

in 2013.

     “What they’re doing is setting the table for some sort of

additional monetary easing,” said Scott Minerd, chief

investment officer in Santa Monica, California for Guggenheim

Partners LLC. “The changes in the statement from last month de-

emphasize growth.”

     Stocks rose and Treasuries extended gains. The Standard &

Poor’s 500 Index climbed 0.4 percent to 1,320.24 at 2:40 p.m. in

New York. The yield on the current five-year note fell nine

basis points to 0.80 percent after touching the record low of

0.76 percent.


                         ‘On the Table’


     Fed Chairman Ben S. Bernanke, speaking at a news conference

after the statements, said that the option of further large-

scale bond purchases is still “on the table.”

     “If inflation is going to remain below target for an

extended period and employment progress’’ is very slow, then

“there is a case’’ for additional monetary stimulus, he said.

     The Fed lowered its forecast for growth this year to 2.2

percent to 2.7 percent, down from a projection of 2.5 percent to

2.9 percent in November. It predicted the economy next year will

expand between 2.8 percent to 3.2 percent, down from a previous

forecast of 3.0 percent to 3.5 percent.

     In a separate statement of its long-range goals and

strategy, the FOMC specified a 2 percent goal for long-term

inflation, as measured by the annual change in the price index

for personal consumption expenditures.


                        ‘Firmly Anchored’


     “Communicating this inflation goal clearly to the public

helps keep longer-term inflation expectations firmly anchored,

thereby fostering price stability,” the panel said in a

statement. It also enhances “the committee’s ability to promote

maximum employment in the face of significant economic


     Policy makers declined to specify a goal for employment,

saying that it “is largely determined by non-monetary

factors.” The committee’s longer-run forecast for the jobless

rate is 5.2 percent to 6 percent.

     The Fed said it would continue to extend the average

maturity of its $2.6 trillion securities portfolio, a move

dubbed “Operation Twist.” The Fed also maintained its policy

of reinvesting maturing housing debt into agency mortgage-backed


     “The Committee expects economic growth over coming

quarters to be modest and consequently anticipates that the

unemployment rate will decline only gradually,” the statement

said. “The Committee also anticipates that over coming

quarters, inflation will run at levels at or below those

consistent with the Committee’s dual mandate.”


                        Omit Description


     Richmond Federal Reserve Bank President Jeffrey Lacker

dissented, and “preferred to omit the description of the time

period over which economic conditions are likely to warrant

exceptionally low levels of the federal funds rate.”

     Recent reports on manufacturing, housing and employment

indicated that the economy was picking up speed as the new year


     Employers added 200,000 jobs in December, twice the

previous month’s pace, and the unemployment rate dropped to 8.5

percent from 8.7 percent the month before.

     Household wealth is getting a boost from rising stock

prices. The Standard and Poor’s 500 Index climbed 4.5 percent in

2012 through yesterday, the best start to the year since 1997,

when it rallied 6.1 percent in the first 14 days.

     Harley-Davidson Inc., the biggest U.S. motorcycle maker,

reported $54.6 million income from continuing operations in the

fourth quarter compared with a loss of $42.1 million a year

earlier. Sales at the maker of Fat Boy and V-Rod motorcycles

rose 12 percent in the U.S.

     Investors are turning increasingly bullish on U.S. markets

as they declare its economy in better health than major rivals

from Europe to Asia, according to the Bloomberg Global Poll.


                         Highest Rating


     Forty-eight percent of respondents predict the U.S. will be

among the world’s best-performing markets this year, according

to the quarterly poll of 1,209 investors, analysts and traders

who are Bloomberg subscribers that was conducted Jan. 23-24.

That’s the highest rating for the U.S. since the poll began in

2009 and it’s more than twice that of Brazil and China, the

second-ranked markets.

     Private forecasters predict the U.S. economy will grow 2.3

percent this year, up from 1.8 percent in 2011, according to a

median estimate in a Bloomberg survey from Jan. 6 to Jan. 11.

     Fed officials are still concerned about the sustainability

of consumer spending as savings rates fall and as disposable

income adjusted for inflation shrinks, said Roberto Perli,

managing director of policy research at International Strategy

and Investment Group Inc. in Washington.


                          Europe Crisis


     A deeper crisis in Europe is another cause for concern. The

International Monetary Fund yesterday cut its forecast for

global growth this year and said the euro crisis threatens to

derail the world economy.

     For the U.S., “the top risks are unemployment and

Europe,” said Drew Matus, senior U.S. economist at UBS

Securities LLC and a former New York Fed staff member.

     UBS estimates that every 0.7 percentage point decline in

euro-area growth cuts U.S. output by 0.3 point. The IMF

yesterday forecast the 17-nation euro area would shrink 0.5

percent this year.

     Google Inc., owner of the world’s most popular Internet

search engine, last week reported fourth-quarter revenue and

profit that missed analysts’ estimates as a slowdown in Europe

crimped sales.

     Some Fed officials have indicated that they remain open to

more bond purchases to keep interest rates low and support



                          Option Open


     Atlanta Fed President Dennis Lockhart told reporters Jan. 9

that he hadn’t closed out “the option” for more stimulus,

while New York Fed President William C. Dudley said in a Jan. 6

speech that it’s “appropriate” to evaluate whether the Fed

could do more to boost growth.

     “Europe is the reason” Fed officials are considering

buying more bonds to boost the economy, said Lou Crandall, chief

economist at Wrightson ICAP LLC in Jersey City, New Jersey.

     “You want to gain as much momentum as you can in case

another storm hits,” Crandall said. “They are worried about

the lack of a catalyst in the U.S. to get us to escape

velocity” of self-sustaining growth.

     The Fed’s $2.3 trillion of bond purchases in two rounds of

so-called quantitative easing haven’t stoked inflation. A gauge

of consumer prices tied to personal expenditures, excluding food

and energy, rose 1.7 percent for the 12 months ending November.


For Related News and Information:

Credit crunch page: WWCC <GO>

Fed balance-sheet figures: ALLX FARW <GO>

Government relief programs: GGRP <GO>

Fed monetary policy: FOMC <GO>

Fed Web links: FRBM <GO>

Central bank rates worldwide: CBRT <GO>


--With assistance from Vivien Lou Chen and Steve Matthews.

Editors: Christopher Wellisz, James Tyson


To contact the reporters on this story:

Craig Torres at +1-202-654-1220


Caroline Salas Gage at +212-617-2314 or


To contact the editor responsible for this story:

Christopher Wellisz at +1-202-624-1862 or
































-0- Jan/25/2012 19:43 GMT



                     Copyright (c) 2012, Bloomberg, L. P.


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