Fed Plans to Stay the Course

A Federal Reserve official predicts that 2010 will see a continuing moderate economic recovery with interest rates kept “exceptionally low” to encourage job creation.  Elizabeth Duke, a Fed governor, said “In the current environment, the Federal Open Market Committee (FOMC) continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.  Such policy accommodation is warranted to provide support for a return over time to more desirable levels of real activity and unemployment in the context of price stability.”

The Fed slashed interest rates to nearly zero in December 2008 in reaction to the worst recession in 70 years, and created other emergency lending facilities.  Speaking to the Economic Forecast Forum in Raleigh, NC, Duke pointed out that recent data on production and spending indicate that economic activity increased at a “solid rate” during the 4th quarter of 2009.

Duke was quick to point out that credit remains tight for businesses; she believes that continued growth is dependent on additional progress in fixing financial markets and re-establishing the flow of credit to households and small businesses.  The Fed will adjust policy if any changes occur in economic conditions.  According to Duke, the Fed has “a wide range of tools for removing monetary policy accommodation when that becomes appropriate.”