How low can you go? Fed expected to keep interest rates low, but not lower
Share Now on:
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.
We’re here to help you navigate this changed world and economy.
Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.
In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.
Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.