US to keep interest rates low until 2013; stocks zoom

August 10th, 2011 - 10:41 am ICT by IANS  

Washington, Aug 10 (IANS) Painting a much gloomier picture of the economy, the US central bank has indicated it would take no new steps to stimulate the economy other than to keep interest rates low for at least two years.

The Federal Reserve’s much-awaited statement on the economy Tuesday sent the Wall Street into a spin as traders did what the New York Times described as “a double take” on the announcement to see the stocks climb, then drop, then rocket again.

Finally as “traders figured out that locked-in interest rates and cheap credit could actually give the economy a more solid footing,” the Dow Jones index rose 429 points, or 3.98 percent, to close at 11,239.77. The broader Standard & Poor’s 500-stock index rose 4.7 percent to 1,172.53.

It was, the Times noted the biggest daily gain in both indexes since March 2009, and followed the carnage of Monday’s 6.7 percent S&P; sell-off, the biggest loss since the height of the financial crisis in late 2008.

Meeting after the historic downgrade of America’s top notch AAA credit rating, the central bank also surprised Wall Street with a “considerably slower” reading on the economy, and a bold statement that the Fed stands ready to enact further stimulus measures if needed, CNN said.

The Fed indicated it plans to keep “exceptionally low” interest rates in place until at least mid-2013 as a way to continue to prop up the recovery.

The Fed has kept the central bank’s key tool to spur the economy near zero since 2008, but has long been ambiguous on its future timeframe, saying it would keep the federal funds rate near zero for an “extended period.”

The central bank acknowledged that economic growth in the United States is “considerably slower” than expected. That marks a change from prior statements, when the Fed had said the recovery was chugging along at a “moderate pace,” CNN said.

The Fed also acknowledged that the job market has recently deteriorated, consumer spending has flattened out and the housing sector remains depressed.

But it indicated it is considering a “range of policy tools available to promote a stronger economic recovery,” and “is prepared to employ these tools as appropriate.”

(Arun Kumar can be contacted at arun.kumar@ians.in)

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