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Fed Retaining Interest Rates at Record Lows

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June 22, 2011 by   Leave a Comment

The Federal Reserve acknowledged Wednesday (June 22) that the economy is growing more slowly than it expected. But it said it will complete its $600 billion Treasury bond buying program by June 30 as planned and announced no further efforts to boost the economy.

Ending a two-day meeting, the Fed repeated a pledge to keep interest rates at record lows near zero for “an extended period,” a promise it’s made for more than two years.

Fed officials said in a statement that they think the main causes of the economy’s slowdown, such as high gas prices and supply disruptions from Japan’s disasters, are temporary. Once those problems subside, Fed officials said the economy should rebound.

Still, the statement stood in contrast to the Fed’s more upbeat view when officials last met eight weeks ago. At that time, the central bank said the job market was gradually improving.

The new statement acknowledged the slowdown that’s occurred over the past two months. The economy added just 54,000 jobs in May, far fewer than in the previous two months. Consumer spending has weakened, too.

The Fed said it would keep its holdings of Treasury bonds at current levels. That policy is intended to keep consumer and business loan rates at low levels to stimulate spending.

Though the central bank noted that inflation has risen, it expects those pressures to be temporary as well.

Bernanke and his colleagues are trying to keep a fragile economy on track two years after the Great Recession officially ended. A spike in gasoline prices earlier this year made consumers and businesses more cautious about spending. Employers scaled back hiring in May.

Economic growth slowed to 1.8% in the first three months of the year. It isn’t expected to be much higher in the current quarter.

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