Saturday, August 22, 2009

Fed official: rates to be kept low past upturn

For the "Things that make you say hmmm..." file. From Felix Salmon at Reuters:
Financial markets have not fully understood that the U.S. Federal Reserve's pledge to keep interest rates exceptionally low for an extended period means they will stay low beyond when officials normally would raise them, a top Fed official said on Friday.

"I don't think markets have really digested what that means," St Louis Fed President James Bullard said in an interview.

The Fed's strategy is aimed at promoting a future rise in inflation, which should provide an immediate boost in activity in anticipation of a future boom, but that hasn't happened, Bullard said.

The St. Louis Fed official's comments suggest the Fed will be in no hurry to raise rates when signs of an economic rebound take firmer hold and that the central bank will be willing to tolerate higher levels of inflation over the short term as it nurses the ailing economy back to health....MORE

HT: Calculated Risk