Most economists expect inflation to jump as the federal government must finance enormous deficits, theoretically crowding out private businesses in the struggle for loans.
Though economic activity is no longer declining, it’s not advancing much either. A shaky economy prompts the Fed to keep its foot on the gas peddle.
The Fed wants to pull back on its expensive interventions into the mortgage bonds market. It’s pledged to buy $1.5 trillion.
The Los Angeles Times reports: The panel voted 10 to 0 to leave the target for the Fed’s key short-term interest rate between zero and 0.25% for “an extended period,” which many analysts interpret to mean until at least mid-2010.
Although that’s good for consumers paying mortgages and credit cards, “if you’re a saver, it’s keeping rates down — you hate it,” said Babette Heimbuch, chief executive at the Los Angeles-based thrift FirstFed Financial Corp.
Jack Ablin, chief investment officer at Harris Private Bank in Chicago, said he was encouraged “by the unanimity of the Fed governors, that we have all of them behind this decision to keep rates low.”
With high unemployment and bank lending still weak, Ablin added, “I think the Fed is taking a very realistic view. There certainly is a lot of stimulus in the system, but also a lot of slack.”