Fed pushes out low-rate pledge to late 2014

The Federal Reserve on Wednesday pledged to hold interest rates low until late 2014, a move that surprised markets and showed the central bank is still worried that economic growth is at risk of faltering.

The new commitment extends the prior statement that economic conditions were likely to keep rates at the historic low range of 0% to 0.25% until at least mid-2013.

The Fed opened a new era of transparency, releasing for the first time the projected path of rates by its 17 members and set a specific inflation goal of 2%. But it was extending the timing of the first rate move that overshadowed all the moves.

Tom Porcelli, chief U.S. economist at RBC Capital Markets, said he was “completely shocked” by the change to late 2014. “This drives home one important fact: The Fed is scared,” he wrote in a note to clients.

At his press conference, Federal Reserve Chairman Ben Bernanke continued to describe the recovery as “fragile.”

He said the weak housing market was holding back growth and blunting the Fed’s efforts to stimulate the recovery.

Asked if he was worried that the late 2014 commitment would signal concern about the recovery, Bernanke replied that any worry about being too downbeat “was outweighed by the need to maintain accommodative financial conditions.”

Many economists had thought the Fed was going to try to wriggle out of setting a calendar date for the first hike, instead pointing to economic conditions.

Jim Glassman, economist at J.P. Morgan Chase, speculated that the Fed may have been specific about its rate commitment in place of another round of quantitative easing. Bond purchases have been unpopular with many investors, who believe that it will eventually lead to higher inflation.

This unease has been captured in Republican presidential-primary debates, where Bernanke has been accused of debasing the currency. Bernanke said he would not respond to political rhetoric or discuss whether he would resign if the Republicans captured the White House in November.

In making the new projection, the central bank said subdued inflation was the key to its forecast. Another factor was the high unemployment rate.

Thomas Simons, a government-debt economist at Jefferies Group Inc., said the Fed “one-upped” the market expectations that the first rate hike would take place in early 2014.

Read more...

Dow Jones Industrial Average (^DJI)

 -DJI

Prev Close:	12,675.75
Open:	12,673.63

Day's Range:	12,580.20 - 12,778.26
52wk Range:	10,362.30 - 12,928.50