Tuesday, August 09, 2011
Fed won't hike rates for at least two years
Posted by David Smith at 07:45 PM
Category: Thoughts and responses

A week, which is when I last posted on this site, is a very long time. Anyway, those who were hoping for an announcement of a third wave of quantitative easing by the Federal Reserve on Tuesday evening were disappointed, though the Fed said it discussed a range of policy tools and is "prepared to employ these tools as appropriate".

Specifically, it made the announcement that it would keep the Fed Funds rate at its current level (0 - 0.25%) until at least mid-2013. Optimists will see this as a sign that the Fed is prepared to do everything to maintain the recovery, pessimists as evidence that America is turning into Japan.

The vote was not unanimous. Three members of the 10-member Federal Open Market Committee, Richard Fisher, president of the Dallas Fed, Charles Plosser of Philadelphia and Narayana Kocherlakota, Minneapolis Fed, dissented, preferring merely a commitment to keep rates low for an "extended period". This was the first time under Ben Bernanke's presidency there have been three dissenting votes.

Earlier in the day we had disappointing UK data, with a 0.4% drop in manufacturing output in June (though a flat figure for overall industrial production) and a widening in the trade deficit in June to 4.5 billion, from 4.1 billion in May, This despite a bigger fall in import volumes in June (5.8%) than the drop in export volumes (2.7%). Even so, the National Institute calculated that GDP rose by a healthy 0.6% in the three months to July.