Federal Reserve Expects to Keep Interest Rates Low Through Mid-2015


On Aug. 31, chairman Ben Bernanke gave the keynote speech in Jackson Hole, Wyo. at the Federal Reserve of Kansas City's Economic Symposium, saying its policies "can be effective."

Torralba said the second round of Treasury purchases, first announced in Nov. 2010, expanded the monetary base but "did nothing to increase lending."

As a part of so-called QE2, the Fed reinvested in securities purchased during QE1 and purchased $600 billion in long-term Treasury securities.

Torralba said QE2 lowered long-term interest rates by less than the first round of quantitative easing, which began in late 2008, at the height of the financial crisis.

It was during the first round that the central bank purchased $500 billion in mortgage-backed securities and $100 billion in debt from Fannie Mae, Freddie Mac, and other housing organizations. The first round completed in the first quarter of 2010.

Though QE2 may have boosted asset prices, "this had a negligible effect on real economic spending," he said.

On Aug. 29, the Commerce Department reported the U.S. economy grew at 1.7 percent in the second quarter, a slowdown compared to the 2 percent growth rate in the first quarter.

The Federal Reserve's projection for GDP growth for the remainder of 2012 was 1.7 to 2 percent. For 2013, it projected 2.5 to 3 percent, and 3 to 3.8 percent in 2014 and 2015.

Torralba said he doesn't believe the Fed has a political agenda, though the chances for any incumbent president for re-election may improve if the Fed's actions are successful in improving the economy.

"The economy has been sagging for two years, and in the last four or five months it has slowed down a bit further. The economy is clearly far from the full-employment point, and one of the Fed's mandates is clearly not being fulfilled," he said.

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