Federal Reserve Keeps Interest Rates Low, Downgrades Assessment Of American Economic Recovery [UPDATE]

UPDATE:

Federal Reserve Chairman Ben Bernanke said on Wednesday that the Federal Reserve's monetary policy will remain essentially unchanged, even as the economic recovery slows.

He said that the Federal Reserve still plans to let their economic stimulus program to expire at the end of June and keep interest rates low, although the Federal Reserve has downgraded their projections for economic growth in the United States in 2011 and 2012.

Bernanke said that although the Federal Reserve expects the unemployment rate to continue to decline, the rate of decline will remain "frustratingly slow."

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PREVIOUSLY:

The Federal Reserve has just acknowledged a truth: The federal government is running out of options to prop up the country's weakened economy.

Federal Open Market Committee (FOMC), the committee that decides Fed policy, has just released a cautious plan to address the slowing economy. Federal Reserve Chairman Ben Bernanke is expected to announce no major changes to monetary policy at a follow-up press conference at 2:15 p.m. ET.

Federal Reserve officials announced that the Fed will keep interest rates as low as before to encourage lending, in light of weaker economic growth than they had expected, according to The Wall Street Journal. They also confirmed that they are planning to end their most recent bond-buying plan, dubbed "quantitative easing" or QE2, on June 30 as planned.

In QE2, the Federal Reserve has gradually bought $600 billion in Treasury notes this past year, in a last-ditch attempt to boost consumer confidence.

Giving away $600 billion -- which is meant to cycle through banks to consumers and businesses through lending -- is supposed to make consumers and businesses feel wealthier, encouraging them to spend more and creating a so-called “wealth effect."

But consumers and businesses have not acted as the Fed predicted. Instead consumers continued to limit their spending and banks have not resumed lending as much as they did before the financial crisis, causing the cycle of lending and spending that keeps the economy going to remain stifled.

Stocks on Wall Street opened lower Wednesday morning as anxiety lingered among investors. The Dow Jones Industrial Average, the S&P 500 and the NASDAQ uniformly declined on Wednesday morning, according to Reuters.

A report released today by investment bank Keefe, Bruyette, & Woods said it believes it is highly unlikely the Federal Reserve will hint at a future bond-buying effort to support the economy, since it could undermine the Fed's credibility and stoke inflation fears. Core inflation has risen 0.9 percent since last October, according to the report, and a new bond-buying effort would be expected to raise prices further.

Partly because of the disappointing results of QE2, the Fed most likely has decided that the risks of a new bond-buying program would outweigh the benefits. The Fed had expected consumers and businesses to ratchet up spending by the end of June, but instead the economy continues to falter, according to The New York Times' Binyamin Applebaum.

As the Fed runs out of options, the central bank now is stuck in a "zone of inaction" as economic growth slows and inflation picks up, according to a report released on Tuesday by Goldman Sachs. Since the Federal Reserve must meet a dual mandate -- limit inflation and keep unemployment down -- and since Bernanke has tried to use all of the weapons in his monetary arsenal without stoking inflation fears, investors expect Bernanke to take a cautious stance Wednesday afternoon.

Investors will pay close attention to Bernanke's description of the economy in words and numbers, according to the Washington Post's Neil Irwin, since the Federal Reserve is expected to downgrade its forecast of economic growth for the rest of the year. The central question, Irwin writes, is how strongly the Federal Reserve believes that the causes of the slowdown in growth are only "temporary."

The Federal Reserve has tried to make up for general inaction from Congress and the White House on addressing the economic slowdown, but now it appears that the Fed, too, will start to step off the playing field. Nonetheless, Bernanke is expected to ask Congress to avoid steep spending cuts that would hurt the economic recovery, eventually come up with a feasible long-term solution to the government's debt crisis and raise the debt ceiling, according to Bloomberg News.

Comments

[Hysterian68]

09:38 PM on 06/23/2011

Bernanke said that although the Federal Reserve expects the unemployme­nt rate to continue to decline, the rate of decline will remain "frustrati­ngly slow."
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Unemployme­nt isn't declining at all. Bernanke knew it all along. Ron Paul is right. Fire Bernanke, abolish the Federal Reserve,. We also need to seize the US banks and grab those assets--th­e worthless ones which form the basis for even more criminal loans.

America's banking system is a hand grenade with the ring pulled and just waiting to explode.

[fortressfountain]

02:47 PM on 06/23/2011

It does not matter what the fed wants to do-encourage people to become impoverished and take out 60% interest credit cards to support their consumption.
It matters people are unwilling to buy or charge-eventually deflation is coming as the corporations will have to make money somehow.
I do not think we ever had a recovery. Just lies.

[Jerry Lammers]

11:17 AM on 06/23/2011

Once again the Federal Reserve's forecast for growth and unemployment has proven to be overly optimistic. They just don't get it. Their econmic models for predicting the future are WRONG. Since Ben Bernanke become Chairman, the Fed has consistently been biased toward fighting inflation, rather than fighting deflation and promoting economic growth and employment. After destroying the lives of tens of millions in the United States and probably a billion around the globe, its the same old WRONG story. Federal Reserve action leading up to the bankruptcy of Lehman Brothers and the onset of our current DEPRESSION caused a $15 Trillion collapse in asset valuations. Putting back a couple $Trillion is woefully inadequate. The Federal Reserve still has the capability to both fix the U. S. economy, while simultaneously solving the government's debt problem by providing an additional $5 Trillion in Quantitative easing spread over the next two years. Otherwise, we continue on the Japanese path of a lost decade of misery and DEPRESSION.

[joeisright]

07:11 AM on 06/23/2011

Bernanke portrayed the Federal Reserve as the great protector of the U.S. economy, he claimed that unemployment would be 15 percent higher if the Federal Reserve had sat back and done nothing during the financial crisis and he even started laying the groundwork for a third round of quantitative easing. Unfortunately, 60 Minutes did not ask Bernanke any hard questions and did not challenge him on his past record. It was almost as if they considered Bernanke to be above criticism. But someone in the mainstream media should be taking a closer look at this guy and his record. The truth is that the incompetence that Bernanke has displayed over the past few years makes the Cincinnati Bengals look like a model of excellence.

[OPRockwell]

12:50 AM on 06/23/2011

The Banks are just playing the spread. Buying the bonds from the Fed at almost zero interest, then selling them back to the Fed for a much higher interest rate. No risk, just a money machine for the banks. The money isn't even circulating into the American economy. Why loan it out and take a risk on loan default?...... Dollars just going round and round between Fed and Private Bankers........You don't need a Harvard Phd to know that won't stimulate the economy....Oh and taxpayer,...here's your bill, the Banks can't thank you enough for making this their most profitable year ever.

[joe kim]

12:46 AM on 06/23/2011

You mean we won't print a little over 3 billion on average a day (including weekends) like we have for the past 6 months?

From what the economists in the know say we will actually have to print another 6 trillion to have the same effect that QE 1 and 2 had. QE 1 printed a mere 2 trillion while QE 2 printed a modest 600 billion, but QE 3 will have to be in the neighborhood of 6 trillion for it to have much effect.

Take a look at Bill Gross' Tweet this morning.... Basically says QE is coming in August.

http://www.zerohedge.com/article/bill-gross-just-set-date-operation-twist-2-and-qe3

[dsa1115]

12:38 AM on 06/23/2011

The FOMC has Fed Funds at .25%. The FOMC doesn't really have many options left.

[Ghoaster]

11:31 PM on 06/22/2011

Can you say "Ponzi"?

[howleygreen]

10:57 PM on 06/22/2011

We are in the post-consumer economy. The baby boom that created ever increasing demand for everything from disposable diapers to cars to homes to fast food to pharmaceuticals is over. If we want growth, we will find it in Asia. We need to develop and dominate the industries (sustainable energy is a major one) that will meet exploding demand in that region of the world.

John Howley
http://www.PacificAdvisorsLLC.com/john_howley.html

[GetRealSoon]

10:31 PM on 06/22/2011

Ya, when homes get stolen and no justice gets done its only natural the economy continues to falter.

[Peanut Santiago]

10:09 PM on 06/22/2011

We need jobs.

We need good paying jobs.

Without enough good paying jobs....everything else is in vain for "fixing" the economy.

People without much money will not spend except on necessities.

And banks don't want to lend to people who might not pay them back.
******The stu pid experiment of lending to the unqualified died with the economic meltdown of 2008.

Right now, only the upper classes are doing well.
And the rest of us are suffering and angry.

Those at the top are stu pid, clueless, or don't care.
OR they refuse to sacrifice for the good of the country.

JOBS!!!!!!

[OldTulsan]

10:42 PM on 06/22/2011

Sadly, "jobs" has become a four-letter word.

[SitandStay]

09:44 PM on 06/22/2011

I am sick of his pouting petulance countenance. Unite masseuses of the world, you have the opportunity to save the world.....you may close the door behind your....never the wiser....

[Luis Soto]

09:23 PM on 06/22/2011

he, i love this guy, pure fiction... he has no idea what this crisis is all about (3rd kondratieff crash of the global economy) can't predict anything (our scholar work predicted the crisis a decade ago), and his only interest is to print cheap money like his predecessor for bankers... never for the people, but hey, if their qinsling politicos who know even less - ask mr. obama an easy one - 'what is money' - keep choosing them, left or right... greenspan though have more flavor in his silly-nilly admonitions. Basically you live in the 3rd phase of the industrial r=evolution, XIX c. we made bodies of machines (trains, steamers) XX c. heads, mobile-ears, chip-brains camera-eyes, XXI we put them together in organic robots, which kick us out of job as soldiers and workers... Between those pahses, mathematically every 72+7 years 1857, crash of the train, 1929-37, crash of the radio-car stocks, 200108, crash of the chip, the economy molts; each phase more workers become obsolete, each phase a new form of money, paper-stocks, ticker money, e-money is reproduced massively by speculators, etc, etc.
But hey, they 'own' the printing machine; they 'own' the presidents, they 'own' the mind of the people. Who cares what come next; they won't have problems with their bills.
www.economicstruth.com

[SitandStay]

09:08 PM on 06/22/2011

Bernanke ....QE2......

http://www.youtube.com/watch?v=6zgMdaWLToM&feature=related

[SitandStay]

09:06 PM on 06/22/2011

Anyone have Bernanke's address?