(AP) — The Federal Reserve said Tuesday that it will likely keep interest
rates at record lows for the next two years after acknowledging that the
economy is weaker than it had thought and faces increasing risks.
announced that it expects to keep its key interest rate near zero through
mid-2013. It has been at that record low since December 2008. The Fed had
previously only said that it would keep it low for "an extended period."
policymakers used significantly more downbeat language to describe current
economic conditions. It said so far this year the economy has grown
"considerably slower" than the Fed had expected. They also said that
temporary factors, such as high energy prices and the Japan crisis, only
accounted for "some of the recent weakness" in economic activity.
explicit time frame is aimed at calming nervous investors. It offered them
a clearer picture of how long they will be able to obtain ultra-cheap
credit, and was at least a year longer than many economists had expected.
But it didn't
seem to help on Tuesday. Stocks initially fell after the statement was
released, possibly reflecting disappointment that the Fed did not announce
another round of bond buying.
met against a backdrop of speculation that they would say or do something
new to address a darkening economic picture. The stock market has plunged
and government data have signaled a weaker economy in the four weeks since
Chairman Ben Bernanke told Congress that the Fed was ready to act if
grew at an annual rate of just 0.8 percent in the first six months of the
year. Consumers have cut spending for the first time in 20 months. Wages
are barely rising. Manufacturing is growing only slightly. And service
companies are expanding at the slowest pace in 17 months.
hired more in July than during the previous two months. But the number of
jobs added was far fewer than needed to significantly dent the
unemployment rate, now at 9.1 percent. The rate has exceeded 9 percent in
all but two months since the recession officially ended in June 2009.
another recession is unavoidable, along with worries that Europe may be
unable to contain its debt crisis, has rattled stock markets. The Dow
Jones industrial average has lost nearly 15 percent of its value since
July 21. On Monday, it fell 634 points — its worst day since 2008 and
sixth-worst drop in history.
on Wall Street was further fueled by Standard & Poor's decision to
downgrade long-term U.S. debt.
didn't speak publicly after Tuesday's Fed meeting. The chairman this year
made a historic change by scheduling news conferences after four of the
Fed's eight policy meetings each year, but Tuesday's wasn't one of them.
month at the Fed's annual retreat in Jackson Hole, Wyo., Bernanke will
likely address the weakening economy, the S&P downgrade and the market
summer, the Fed ended a $600 billion Treasury bond-buying program. The
bond purchases were intended to keep rates low to encourage spending and
borrowing and lift stock prices.