In an effort to fuel the nation’s economic recovery, super-low interest rates are not expected to be strong enough to decrease the unemployment rate, and according to the Fed, could feed a new speculative bubble. Not only could record-low interest rates lead to excessive risk-taking in the financial markets, but they could also cause consumers, investors and businesses to worry about inflation taking off.
In early November, Fed Chairman Ben Bernanke kept the target range for its bank lending rate at zero to 0.25 percent for an “extended period of time” to stimulate economic recovery. Even with low rates, the Fed expects the anticipated recovery to be slow and unemployment is expected to remain elevated over the next several years, with some Fed policymakers anticipating a five- to six-year timeline.
According to new forecasts, the economy is expected to decrease 0.5 percent or be flat for 2009, an improvement from the contraction of 0.6 percent to 1.6 percent announced over the summer, due to stronger second half results. Additionally, growth in 2010 is also expected to improve at a faster rate than originally forecast. Economic growth next year is projected to range from 2 percent to 4 percent, up from 0.8 percent to 4.0 percent.