{"id":26471,"date":"2014-09-19T21:31:10","date_gmt":"2014-09-19T13:31:10","guid":{"rendered":"https:\/\/canadianinquirer.net\/v1\/?p=26471"},"modified":"2014-09-19T16:57:51","modified_gmt":"2014-09-19T08:57:51","slug":"fed-keeps-record-low-rates-for-now-but-investors-consumers-businesses-face-the-inevitable","status":"publish","type":"post","link":"https:\/\/canadianinquirer.net\/v1\/2014\/09\/19\/fed-keeps-record-low-rates-for-now-but-investors-consumers-businesses-face-the-inevitable\/","title":{"rendered":"Fed keeps record low rates for now, but investors, consumers, businesses face the inevitable"},"content":{"rendered":"

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WASHINGTON\u2014Record-low interest rates will be around for at least a few more months, the Federal Reserve made clear Wednesday.<\/p>\n

Enjoy the easy money while it lasts.<\/p>\n

By mid-2015, economists expect the Fed to abandon a nearly 6-year-old policy of keeping short-term rates at record lows. Those rates have helped support the economy, cheered the stock market and shrunk mortgage rates. A Fed rate increase could potentially reverse those trends.<\/p>\n

Mortgages could cost more. So could car loans. Investors could get squeezed.<\/p>\n

\u201cBorrowers should see the writing on the wall,\u201d said Greg McBride, chief financial analyst at Bankrate.com. \u201cInterest rates are eventually going to go up. They should pay down variable-rate debt and keep an eye on that adjustable-rate mortgage. They don\u2019t want to be caught flat-footed.\u201d<\/p>\n

Investors, in particular, might recall that mere speculation about the end of the Fed\u2019s stimulus shook global financial markets in May 2013. In coming months, as the prospect of higher rates nears, traders might once again dump stocks and bonds and send prices tumbling.<\/p>\n

Higher yields on bank accounts and CDs could provide some modest relief for savers and retirees who have struggled for years to get by on meagre interest income. But any gains they receive could be diminished by the likelihood that inflation will be higher once the economy is strong enough for the Fed to end its ultra-low rate policy.<\/p>\n

Still, on Wednesday, Fed policymakers once again decided: Not yet.<\/p>\n

The central bank said it intends to keep its benchmark rate near zero as long as inflation remains under control, until it sees consistent gains in wage growth, long-term unemployment and other gauges of the job market.<\/p>\n

The Fed retained language signalling its plans to keep short-term rates low \u201cfor a considerable time\u201d after it ends its monthly bond purchases after its next meeting in October.<\/p>\n

The decision sent the Dow Jones industrial to a record high Wednesday. And on Thursday, stocks extended their gains. The Dow rose 86 points in midmorning trading.<\/p>\n

\u201cWhat we heard from the Fed today is really what investors like to hear,\u201d McBride said. \u201cThe stimulus isn\u2019t going to go away overnight.\u201d<\/p>\n

In its statement, the Fed said it will make another $10 billion cut in the pace of its Treasury and mortgage bond purchases, which have been intended to keep long-term borrowing rates low.<\/p>\n

\u201cIn the Fed\u2019s mind, the economy still has work to do, but it\u2019s improving,\u201d said Mike Arone, an investment strategist with State Street Global Advisors.<\/p>\n

The Fed also clarified the process by which it will eventually unwind its low-rate policies. The Fed said it would first raise its key short-term rate before it stops reinvesting its bond holdings, which have driven the Fed\u2019s balance sheet to a record of nearly $4.5 trillion.<\/p>\n

The central bank also issued updated forecasts for growth, inflation and interest rates. The median short-term rate supported by Fed policymakers at the end of 2015 is now 1.38 per cent, up from 1.13 per cent at its June meeting. This suggested pressure from some Fed officials for a faster rate increase than the Fed\u2019s statement implied.<\/p>\n

The Fed also expects slower growth this year and next than in its last projections issued in June. It predicts that the economy will grow about 2.1 per cent this year, down from its June forecast of roughly 2.2 per cent. That reduction likely reflects the sharp contraction in the first quarter of this year. The economy has rebounded solidly since then.<\/p>\n

On the eve of the Fed\u2019s meeting this week, the financial\u00a0world\u00a0had been on high alert for whether the Fed would reiterate that it expects to keep its key short-term rate near zero for a \u201cconsiderable time\u201d after the bond buying ends.<\/p>\n

With job growth solid, manufacturing and construction growing and unemployment at a near-normal 6.1 per cent, many analysts had suggested that the Fed was edging closer to a rate increase to prevent a rising economy from igniting inflation.<\/p>\n

The number of U.S. job openings is near its highest level in 13 years. Layoffs have dwindled. And consumer confidence has reached its highest point in nearly seven years.<\/p>\n

Despite the signs of a stronger economy, most economists think the first increase in the Fed\u2019s short-term rate won\u2019t occur until mid-2015.<\/p>\n

The Fed\u2019s new statement retained language stating that a range of labour market indicators \u201csuggests there remains significant underutilization of labour resources.\u201d<\/p>\n

Meeting with reporters after the Fed meeting, Chair Janet Yellen said she still thought the job market has yet to fully recover.<\/p>\n

\u201cThere are still too many people who want jobs but cannot find them, too many who are working part time but would prefer full-time work and too many who are not searching for a job but would be if the labour market were stronger,\u201d Yellen said.<\/p>\n

The Fed made only minor changes to its previous statement in its assessment of the economy. The statement was approved on an 8-2 vote.<\/p>\n

The dissents came from Charles Plosser, president of the Fed\u2019s Philadelphia regional bank, who had dissented at the last meeting, and Richard Fisher, president of the Dallas regional Fed bank. Both are viewed as \u201chawks\u201d\u2014Fed officials who are most concerned about the threat of inflation and believe the Fed should be moving more quickly to raise rates.<\/p>\n

Asked at her\u00a0news\u00a0conference whether she had concerns about the dissents, Yellen noted that the committee had approved the policy statement by \u201can overwhelming majority, and I don\u2019t consider the level of dissent to be surprising or very abnormal.\u201d<\/p>\n

In response to another question, Yellen said it could take until the end of the decade to shrink the Fed\u2019s investment holdings to more normal levels.<\/p>\n

Before its policy announcement Wednesday afternoon, the Fed had received good\u00a0news\u00a0on inflation with a report that consumer prices fell by a seasonally adjusted 0.2 per cent in August, the first monthly drop in prices in 16 months.<\/p>\n

In August, U.S. employers added just 142,000 jobs, well below the 212,000 average of the previous 12 months. The slowdown was seen as likely temporary.<\/p>\n

But some analysts said it underscored that the economic outlook might remain too hazy for the Fed to signal an earlier-than-expected rate hike.<\/p>\n

AP Economics Writers Christopher S. Rugaber and Josh Boak contributed to this report.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

WASHINGTON\u2014Record-low interest rates will be around for at least a few more months, the Federal Reserve made clear Wednesday. Enjoy …<\/p>\n","protected":false},"author":44,"featured_media":26472,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[19],"tags":[],"class_list":["post-26471","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","mauthors-paul-wiseman","mauthors-martin-crutsinger","mauthors-the-associated-press"],"_links":{"self":[{"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/posts\/26471","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/users\/44"}],"replies":[{"embeddable":true,"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/comments?post=26471"}],"version-history":[{"count":0,"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/posts\/26471\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/media\/26472"}],"wp:attachment":[{"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/media?parent=26471"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/categories?post=26471"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/canadianinquirer.net\/v1\/wp-json\/wp\/v2\/tags?post=26471"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}