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Federal Reserve to keep zero interest rate, says chairman Ben Bernanke

Economic situation in US and slow recovery from recession means rate will remain at close to zero ‘through to late 2014′

The US Federal Reserve said on Wednesday night it expected to keep short-term interest rates close to zero “at least through to late 2014″ – longer than previously indicated – as chairman Ben Bernanke expressed concerns about the pace of the recovery.

This means the Fed fears the US economy will not fully recover from the recession that started in 2008 for at least another two years.

“While indicators point to some further improvement in overall labour market conditions, the unemployment rate remains elevated,” the Fed said in a statement released after a two-day meeting. “Household spending has continued to advance, but growth in business fixed investment has slowed, and the housing sector remains depressed.”

For the first time the Fed released a quarterly economic forecast, detailing committee members thoughts about how long they believe the Fed should retain its three-year-old policy of holding short-term interest rates near zero.

Bernanke said 11 of the 17 members of the Federal Open Markets Committee (FOMC) believe rates will be at or below 1% in 2014, six believe they will be higher.

The Fed said it expected unemployment to be between 8.2% and 8.5% at the end of 2012, a slight improvement on projection from a few months ago. The majority believed unemployment would be below 7% by 2014.

“There has certainly been some encouraging news recently,” Bernanke said at a press conference. “At the same time we have had mixed results in other areas, such as retail sales, and we continue to see headwinds from Europe.”

Since the recession began the Fed has committed to two massive rounds of quantitative easing to put more money in the system and kickstart sluggish lending markets. Bernanke said the Fed could take further action “if conditions warrant”. © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds