Fed signals plan to keep key rate at record low

SHARE Fed signals plan to keep key rate at record low
SHARE Fed signals plan to keep key rate at record low

WASHINGTON — The Federal Reserve signaled Wednesday that it plans to keep a key interest rate at a record low for a considerable period because a broad range of U.S. economic measures remain subpar.

The Fed said it planned to keep its benchmark rate near zero as long as inflation remains under control, until it sees consistent gains in wage growth, long-term unemployment and other gauges of the job market.

The Fed retained language signaling its plans to keep short-term rates low “for a considerable time” after it ends its monthly bond purchases after its next meeting in October.

In a statement ending its latest policy meeting, the Fed says it will make another $10 billion cut in the pace of its purchases, which have been intended to keep long-term borrowing rates low.

On the eve of the Fed’s meeting, the financial world was on high alert for the words “considerable time.” The Fed’s recent statements had said it expected to keep its key short-term rate near zero for a “considerable time” after it ended its bond buying. Its purchases have been intended to keep long-term rates down.

Most economists have said they think the Fed will raise rates starting around mid-2015. But as the U.S. economy has strengthened, speculation has intensified about whether it might do so sooner, perhaps by March.

Chair Janet Yellen will be pressed to clarify the Fed’s intentions when she holds a news conference later Wednesday.

With job growth solid, manufacturing and construction growing and unemployment at a near-normal 6.1 percent, many analysts had suggested that the Fed was edging closer to a rate increase to prevent a rising economy from igniting inflation.

Other economic gauges have strengthened, too. The number of U.S. job openings is near its highest level in 13 years. Layoffs have dwindled. And consumer confidence has reached its highest point in nearly seven years.

Despite the steady decline in unemployment, Yellen has cautioned that it may overstate the job market’s improvement. She has said the Fed also takes into account the number of people unemployed for more than six months; the number of part-timers who want full-time work; and average wages. Those measures remain less than healthy.

Over the past several years, the Fed’s ultra-low rates have helped the economy, cheered the stock market and shrunk mortgage rates. A rate increase could threaten to reverse those trends.

In August, U.S. employers added just 142,000 jobs, well below the 212,000 average of the previous 12 months. The slowdown was seen as likely temporary. But some analysts said it underscored that the economic outlook might remain too hazy for the Fed to signal an earlier-than-expected rate hike.

MARTIN CRUTSINGER, AP Economics Writer

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