THE UNITED STATES’ Federal Reserve has left its key interest rate unchanged for the 20th successive month – but has expressed concern about the level of inflation in the American economy and the likelihood of real interest rates becoming too high.
The Fed’s benchmark federal runds rate remains at between 0 and 0.25%, but chairman Ben Bernanke said that inflation in the economy was worrying low – and that if it remained so, or moved into deflation, the real interest rate would rise and thus completely undermine the Fed’s low-rate policy.
When taken in tandem with a 2003 quote dug up by Bloomberg, where he said “even if we consider actual deflation to be too remote to worry about, further disinflation poses important risks”, Bernanke’s comments hint at a potential monetary intervention by the Fed if the economy does not begin to speed up.
The Fed also stated, however, that a ‘double-dip’ recession is off the table, but that economic recovery would be a continually slow-paced and modest recovery.
The announcements have fuelled argument among analysts that the Fed is actively pursuing a policy to weaken the dollar, which slid against foreign currencies overnight in the wake of Bernanke’s annoucement, in an attempt to artificially nurture the export sector.
It also indicates that the Fed may be on the verge of a second round of unconventional easing, saying that it was prepared to “provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate.”
The price of gold once again hit an all-time high as investors sought to put their assets ìnto more long-term prospects.
To embed this post, copy the code below on your site
have your say