The Fed keeps Rates low

The Federal Reserve said on Wednesday that it plans to keep interest rates very low even after unemployment falls close to a normal level.

For the first time, the fed has made it clear how it will impact the economy directly by providing clear actions. As result of such transparency, consumers and investors are a lit more settled. This will allow the market to have a positive response and allow consumers to feel a little more comfortable when deciding to borrow.

The move by the fed is intended to give a boost to the market and inject some much needed cash into the economy. Even though the move is seen as beneficial to the economy, it has a big impact on retirees and those who depend on savings

"This approach is superior" to setting a timetable for a possible rate increase, Chairman Ben Bernanke said at a news conference after the Fed held a two-day policy meeting and issued a statement. "It is more transparent and will allow the markets to respond quickly and promptly to changes" in the Fed's economic outlook.

"The Fed has become more explicit and more transparent," said Steven Wood, chief economist at Insight Economics. "This should provide the markets with much more clarity around monetary policy action in the upcoming year."

The Central Bank stated that it plans to be aggressive in its bond purchase and plan on keep on sepngin $45 billions worth of treasury bonds a month to purchase bonds. This move is intended to keep the cost of borrowing low and give a boost to hiring.
The latest, known as “Operation Twist,” involved selling short-term debt and buying long-term bonds. As a result, the demand for long term bond will increase driving down interest rates on long-term borrowing, like mortgage loans while draining cash out of the system with the sale of short-term debt.
The policy extends the Fed’s four-year strategy of flooding the financial system with cash by piling more debt onto the nearly $2.8 trillion in Treasury and mortgage bonds already stashed in its vaults.

Currently, the employment’s rate is at 7.9%. The fed intends on pushing with its new policy at least until the employment rate decrease to 6.5%. the new strategy implemented might continue beyond the 6.5% target for the unemployment rate.

The fed are afraid that the unemployment remain high which will cause those out of work not to be able to find jobs offering them the same pay they were accustomed too.

The priority at this point is to stimulate the economy and decrease the unemployment rates.

With the fiscal cliff looming, a lot of businesses are bracing for deep changes and uncertainty.