How low can you go? Fed expected to keep interest rates low, but not lower

Federal Reserve Board of Governors Chairman Ben Bernanke speaks during a luncheon at the Renaissance Hotel, April 12, 2013 in Washington, DC.

The Federal Reserve’s interest rate-setting committee wraps up a two-day meeting today. This afternoon, it will announce its next steps in shoring up the economy.

The Fed has been pumping money into the economy for the past four years, buying $85 billion worth of U.S. bonds each month. The thinking is, when there’s that much cash sloshing around, interest rates will stay low. That will encourage consumers to buy houses and cars.

Len Blum, managing partner at Westwood Capital, expects the Fed to just continue what it’s doing.

“The status quo right now probably makes sense," he says. "You know, there just seems to be more risk to not continuing than continuing."

But don’t expect the Fed to step on the gas any more to stimulate economic growth. Former Fed economist Ken Kuttner doesn’t think the Fed’s Open Market Committee will try to push interest rates any lower because that would encourage risk-taking, which could lead to another bubble.

“I don’t think people on the committee are actually using the word bubble," he explains. "Excessive risk taking is sort of a code word for bubble."

Kuttner says the Fed is also worried that financial markets will get too dependent on it,  if it steps up the stimulus. Forgetting how to operate on their own, without government help.


Audio Extra: Chris Low, chief economist with FTN Financial, shares his predictions on what the Federal Reserve will do next.

 

About the author

Nancy Marshall-Genzer is a senior reporter for Marketplace based in Washington, D.C. covering daily news.

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