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Fed Can Keep Interest Rates Low Until 2012
Central Bank could keep short-term interest rates low until 2012 to persuade economic growth, a member of the Federal Reserve Policy-setting body put forward on Monday. It could also use some of the monetary tools to check the excessive inflation. A proposal will be laid out by the Federal Reserve Chairman, Ben Bernanke for credit tightening, once the Fed makes a decision that the economy has been recovered. Money is paid to banks that they leave on reserve at the central bank by Fed which is known as ‘interest on excess reserves’. This rate is now 0.25 percent.
James Bullard, a new member of the Federal Open Market Committee who is the president of the Federal Reserve Bank of St. Louis also took tough policy decisions during the financial crisis to prevent a second Great Depression which includes quantitative easing measures to keep interest rates low and to drain ready cash into the financial system.
According to Fed officials, the agency is ready to strike the brakes. It planned to raise the rate paid on excess reserves. One is to encourage banks to tie up money at the Fed for a set period which would prevent them from lending it and to lock up funds.
"If Fed raises the interest rate paid on excess reserves, this would raise the price of credit. That, in turn, would limit the demand for credit", said New York Fed President William Dudley in a December speech.
Central Bank could keep short-term interest rates low until 2012 to persuade economic growth, a member of the Federal Reserve Policy-setting body put forward on Monday. It could also use some of the monetary tools to check the excessive inflation. A proposal will be laid out by the Federal Reserve Chairman, Ben Bernanke for credit tightening, once the Fed makes a decision that the economy has been recovered. Money is paid to banks that they leave on reserve at the central bank by Fed which is known as ‘interest on excess reserves’. This rate is now 0.25 percent.
James Bullard, a new member of the Federal Open Market Committee who is the president of the Federal Reserve Bank of St. Louis also took tough policy decisions during the financial crisis to prevent a second Great Depression which includes quantitative easing measures to keep interest rates low and to drain ready cash into the financial system.
According to Fed officials, the agency is ready to strike the brakes. It planned to raise the rate paid on excess reserves. One is to encourage banks to tie up money at the Fed for a set period which would prevent them from lending it and to lock up funds.
"If Fed raises the interest rate paid on excess reserves, this would raise the price of credit. That, in turn, would limit the demand for credit", said New York Fed President William Dudley in a December speech.
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