Interests Rates Disagreements

Investors assume that the Fed meeting tomorrow will maintain unchanged the key interest rate near zero, but are waiting for announcements which will accompany the decision in regards to indications of when the central bank intends to return to a more restrictive monetary policy.

The officials seem to disagree on the timetable for increasing borrowing costs. More than a year after the reduction in U.S. interest rates in the range of 0% – 0.25%, many economists estimate that an increase in borrowing costs could jeopardize the fragile process of recovery and efforts to curb unemployment, which has climbed to record levels. Ben Bernanke himself had indicated a few weeks ago that “the economy needs low interest rates for a long time yet.”

In the previous meeting of the Open Market of the central bank a decision to keep interest rates ‘extremely low’ for ‘extended period’ was taken by a vote of 9 to 1. The head of the Fed of Kansas City disagreed. Analysts estimate that at tomorrow’s meeting it is probable that other voices will respond in a similar manner against the immediate increase in interest rates. Officials have hinted that they are concerned that the maintenance of interest rates near zero for too long could lead to new bubbles in asset markets. So be provided a heated debate as to whether to include in the notice again the words “for an extended period.