The Federal Reserve made a good decision this week when it announced it would likely keep its rates below 1 percent through late 2014 to help address the continuing weakness of the U.S. economy.
This decision reassures consumers and businesses about the Fed's policy strategy over the next two years and continues the era of historically low rates for loans. The unfortunate part is it also continues the historically low rates for savings.
The Fed said Wednesday it will continue the policy of low interest rates through 2014, unless the economy improves faster than the Fed policymakers are expecting. This low-interest policy was implemented in 2008 at the peak of the economic crisis.
The economic indicators while improving still remain weak. Unemployment has declined slightly but is expected to remain near its current 8.5 percent level through 2012 before declining in 2013. Nationwide retail sales growth has been disappointing, housing remains a depressed market sector and business investment has slowed somewhat.
The U.S. market also faces some uncertainty as Europe continues to address its own economic crisis. In this worldwide market today, what happens in Europe has an impact in west central Minnesota and the U.S.
The good news is that inflation remains below 2 percent.
The economic rebound has been welcome, but the improvements have been slow.
The important part of the Fed's message this week is that it outlines its policy intent through 2014. This is important for consumers and businesses as they now better understand the Fed's strategy, which benefits their own planning. This stability may help more consumers re-enter the housing market and businesses can better complete their business strategies and possible expansion plans.
The market response to the Fed's announcement Wednesday was positive with stock prices rising and interest rates moving lower. We hope this will continue the economic rebound, if not speed up the economic recovery.