Federal Reserve could begin plans to raise interest rates

Scott Tong Dec 13, 2011

Jeremy Hobson: The Federal Reserve is holding a meeting today in Washington, and policymakers are likely to announce that interest rates will remain near zero. The Fed has been keeping borrowing costs at that level ever since the financial crisis, in order to spur lending and spending.

But as Marketplace’s Scott Tong reports, this meeting could be the beginning of the beginning of the beginning of the end of those record low interest rates.

Scott Tong: If you believe surveys of economists who watch the Fed, central bankers may eventually abandon their economic steroid policy. The Fed has kept interest rates ultra low, and telegraphed they’d continue to for the next year and a half.

So why back off? The U.S. economy is showing some signs of life, says Steve Barrow at Standard Bank in London.

Steve Barrow: Things have been a little better in the last couple of months; growth in the 4th quarter of this year could be 3 percent or more.

The economic hopeful camp thinks at the next meeting in January, the Fed may signal publicly that interest rates will eventually come off the floor. But policymakers are split: some still see weaknesses, and think the Fed needs to buy large amounts of mortgage securities.

Barrow: The aim of this type of quantitative easing is not just to have lower rates. But it’s also to put some extra cash in the economy.

As always, there’s juicy conjecture. But the Fed next month may take away some of the parlor-game fun. It plans to be more transparent in its communications and its leanings.

In Washington, I’m Scott Tong for Marketplace.

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