Most Active Stories
KRWG.ORG-The Region's Home Page
Tue March 13, 2012
Federal Reserve Stands Firm On Interest Rates
MELISSA BLOCK, HOST:
This is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block.
ROBERT SIEGEL, HOST:
And I'm Robert Siegel. Things are getting better, but let's not take it for granted, shall we? Well, that seems to be the message from the Federal Reserve today about the economy. Fed policymakers met in Washington and said they still intend to keep short term interest rates near zero through 2014.
Here's NPR's John Ydstie.
JOHN YDSTIE, BYLINE: There were no changes in Fed policy at this meeting. There was no indication that Fed officials are ready to add more stimulus to the economy, but at the same time, no indication they're ready to pull back stimulus, either.
But Princeton professor, Alan Blinder, a former vice chairman of the Federal Reserve Board, says the statement released today suggests the policymaking committee is a bit happier about the economy.
ALAN BLINDER: It's not so much that it got up on the table screaming for joy, but in the subtle ways that the Fed tweaks its wording here, there and the other place, everything sort of moved in a positive direction.
YDSTIE: For instance, at its last meeting, Fed officials said indications point to further improvement in the labor market. This time, they said labor market conditions have improved. The Fed also said strains on global financial markets have eased, but the changes were subtle.
RANDALL CROSNER: The Fed is very concerned about false dawns.
YDSTIE: That's Randall Crosner, another former Fed governor who's now a professor at the University of Chicago. He says Fed officials have good reason to be careful.
CROSNER: They are naturally cautious because, if you look back into early 2010, early 2011, some of the numbers looked pretty positive then and things didn't turn out so well.
YDSTIE: Blinder agrees and he points to one big concern Fed officials have. It has to do with the recent rapid drop in the unemployment rate to 8.3 percent, even as economic growth has been only moderate.
BLINDER: Given the GDP growth we've had over the last three quarters, we shouldn't, by statistical averages, have had such a sharp drop in the unemployment rate, but we did.
YDSTIE: That makes Fed officials worry that the decline is not going to be durable, that the unemployment rate could rise again and that keeps them from removing stimulus, something many Republican lawmakers and presidential candidates have urged them to do out of concern for inflation.
While Fed officials acknowledged today that higher oil and gasoline prices might boost inflation, they said the increase would be temporary. Crosner says, right now, concern about inflation is not likely to move the Fed off its current course.
CROSNER: The Fed is seeing, still, a lot of risks out there, seeing very little inflation pressure and saying, well, let's continue to provide the support that we've been providing and we'll see how the economy evolves.
YDSTIE: Investors in the financial markets took the Fed's subtle hints about the improving economy to heart. They drove stock prices sharply higher and pushed long term interest rates to their highest level this year, though rates remain near historic lows.
John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright National Public Radio.