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Informing the public about the Federal Reserve
Why are interest rates being kept at a low level?
For some time, the Federal Open Market Committee (FOMC) has indicated in its meeting statements that it expects that 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 for an extended period. In its January 2012 statement, the Committee indicated that it anticipated that rates would remain low through at least late 2014.
The financial crisis that began in 2007 was the most intense period of global financial strains since the Great Depression, and it led to a deep and prolonged global economic downturn. The Federal Reserve took extraordinary actions in response to the financial crisis to help stabilize the U.S. economy and financial system. These actions included reducing the level of short-term interest rates to near zero. To provide further support for the U.S. economy, the Federal Reserve has purchased large quantities of longer-term Treasury and other high-quality securities in an effort to further reduce longer-term interest rates. Low interest rates help households and businesses finance new spending and help keep the prices of many other assets, such as stocks and houses, steady.
By law, the Federal Reserve conducts policy to achieve its dual mandate of maximum employment and stable prices. Although the economic outlook is much improved from the period of the crisis, the unemployment rate remains high and underlying inflation is somewhat low. In this environment, the Federal Reserve has determined that an accommodative stance of policy with low interest rates is necessary to help promote a stronger pace of economic recovery and to help ensure that underlying inflation does not move even lower over the medium term.
