The U.S. Federal Reserve Tuesday signaled it plans to keep its benchmark short-term interest rate close to zero for at least another two years as it sharply downgraded its view of the U.S. economy.
In a statement after a one-day policy meeting, Fed officials said they expect the weak economy to warrant exceptionally low levels for the federal funds rate “at least through mid-2013.” Seven voted in favor of this action, with three voting against.
While not the bold step to buy more bonds that some in the markets were hoping for, the move may help keep borrowing rates low and drive investors into riskier assets like stocks. The Dow Jones Industrial Average was up in volatile trade Tuesday, after suffering its biggest one-day decline since the 2008 crisis on Monday.
Officials Tuesday also downgraded their assessment of the U.S. economy for the third time this year, saying that economic growth so far this year has been “considerably slower than the Committee had expected.”