Federal Reserve officials said their benchmark interest rate will stay low until at least late 2014 and anticipate that unemployment will remain high and inflation “subdued.”
“The Committee expects to maintain a highly accommodative stance for monetary policy,” the Federal Open Market Committee said in a statement released in Washington today. “Economic conditions — including low rates of resource utilization and a subdued outlook for inflation over the medium run — are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”
The Fed extended its previous pledge to keep rates low at least until the middle of 2013 as inflation remains tame and more than two years of economic growth have failed to push unemployment below 8.5 percent. Some Fed officials have said further easing might be needed to put more Americans back to work and revive the housing market.
Stocks erased losses and Treasuries extended gains after the statement. The Standard & Poor’s 500 Index rose 0.1 percent to 1,315.66 at 12:34 p.m. in New York. The yield on the 10-year Treasury note fell to 1.98 percent from 2.06 percent late yesterday.
U.S. central bankers at 2 p.m. today will unveil their latest predictions for economic growth, inflation and unemployment for the next three years. They will also for the first time make public their forecasts for the benchmark lending rate. Chairman Ben S. Bernanke will follow that release with a press conference at 2:15 p.m. in Washington.
The Fed said it would continue to extend the average maturity of its $2.6 trillion securities portfolio, a move dubbed “Operation Twist.” The Fed also maintained its policy of reinvesting maturing housing debt into agency mortgage-backed securities.
“The Committee expects economic growth over coming quarters to be modest and consequently anticipates that the unemployment rate will decline only gradually,” the statement said. “The Committee also anticipates that over coming quarters, inflation will run at levels at or below those consistent with the Committee’s dual mandate.”
Richmond Federal Reserve Bank President Jeffrey Lacker dissented, and “preferred to omit the description of the time period over which economic conditions are likely to warrant exceptionally low levels of the federal funds rate.”
Recent reports on manufacturing, housing and employment indicated that the economy was picking up speed as the new year began.
Employers added 200,000 jobs in December, twice the previous month’s pace, and the unemployment rate dropped to 8.5 percent from 8.7 percent the month before.
Household wealth is getting a boost from rising stock prices. The Standard and Poor’s 500 Index climbed 4.5 percent in 2012 through yesterday, the best start to the year since 1997, when it rallied 6.1 percent in the first 14 days.
Harley-Davidson Inc., the biggest U.S. motorcycle maker, reported $54.6 million income from continuing operations in the fourth quarter compared with a loss of $42.1 million a year earlier. Sales at the maker of Fat Boy and V-Rod motorcycles rose 12 percent in the U.S.
Investors are turning increasingly bullish on U.S. markets as they declare its economy in better health than major rivals from Europe to Asia, according to the Bloomberg Global Poll.
Forty-eight percent of respondents predict the U.S. will be among the world’s best-performing markets this year, according to the quarterly poll of 1,209 investors, analysts and traders who are Bloomberg subscribers that was conducted Jan. 23-24. That’s the highest rating for the U.S. since the poll began in 2009 and it’s more than twice that of Brazil and China, the second-ranked markets.
Private forecasters predict the U.S. economy will grow 2.3 percent this year, up from 1.8 percent in 2011, according to a median estimate in a Bloomberg survey from Jan. 6 to Jan. 11.
Fed officials are still concerned about the sustainability of consumer spending as savings rates fall and as disposable income adjusted for inflation shrinks, said Roberto Perli, managing director of policy research at International Strategy and Investment Group Inc. in Washington.