The Fed’s move is a reaction to a fairly gloomy assessment of the state of the US economy. The recovery in America is still happening, but slower, and what’s going on in the rest of the world poses “significant risks”. The Federal Reserve cut its forecast for economic growth in 2012 from 2.9% to 2.4%; and predicted a central unemployment rate of up to 8.2%, having forecast up to 8% on 25 April.
Ben Bernanke confirmed their plan is to keep long-term interest rates low, in the hope it will encourage the consumers to spend and businesses to employ more workers. This is an extension to the policy, which started back in September 2011.
In yesterday’s announcement the Fed also extended its programme of swapping short-term bonds for long-term ones, known as Operation Twist, until the end of the year. The idea of the programme is to cut the long-term cost of borrowing for businesses and households. (The programme is worth $267 Billion (£170 Billion).
The central bank’s statement pointed out that “growth in employment has slowed in recent months, and the unemployment rate remains elevated”.
It has kept interest rates unchanged at the level of zero to 0.25%.
This was a rather a somber affair off the back of strong stock market movements but so far this may just be a relief upswing. The general opinion is this has, at least in part been driven, over the Eurozone Crisis and especially the outcome of the Greek Election. There is still the rather worrying economic and fiscal news from Span and Italy; or the overhang fears from India and possibly China (but tinged with some potential of positive news shortly from China – fingers crossed).
welshmoneywiz 