Federal Reserve Determined To Keep Short-Term Interest Rates Near Zero Until Unemployment Falls

The American unemployment rate is 9.8% and there is no prospect of a significant fall in that number until at least 2015.

There are signs that the economy is picking up and that has driven up interest rates, which the Fed is trying to keep low.

Is the Fed pushing money into an accelerating economy? That is the worry of its critics who say the Fed is not tough enough on inflation.

Ben Bernanke’s main concern seems to be to avoid deflation.

The Washington Post reports:

The climb in interest rates is confounding the Fed’s efforts as it tries to bring down rates by buying $600 billion in Treasury bonds. The central bank affirmed that it would stay on course with those plans Tuesday after a policy meeting.

The interest rate the U.S. Treasury must pay to borrow money for a decade climbed 0.2 percentage points Tuesday – a significant one-day bounce – to 3.47 percent, and is up about 1.1 percentage points since Oct. 7. A wide range of other interest rates, including on corporate loans and home mortgages, usually move in tandem with government borrowing rates. Thirty-year fixed-rate mortgages averaged 4.62 percent last week, Freddie Mac said, up from 4.17 percent the week of Nov. 11, and the rise in Treasury bond rates is likely to push them up further.

If the higher rates persist, or rise further, it would both lean against economic growth and make it that much more expensive for the federal government to finance its debt.

Interest rates – both for Treasury bonds and for those paid by ordinary consumers and businesses – remain low by historical standards. But the speed with which they have risen is startling, particularly in the nine days since the White House and Congress reached a tentative agreement to leave Bush-era tax cuts in place for two more years for all Americans, implement a temporary reduction in payroll taxes and extend unemployment insurance benefits.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (Alexander90210.com), he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Alexander90210.com. Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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