Federal Reserve Holds Interest Rates at Record Lows

The Federal Reserve Chairman Ben Bernanke pledged Wednesday, December 16, to hold interest rates at a record low rate to help drive down double-digit unemployment, turning an economic crisis into an economic recovery. Seeking a second term as Fed chief, Bernanke has made it clear sustaining an economic recovery is his top priority.


The Fed Chairman said that while the economy is growing, it is occurring a very slow pace. He also sounded hopeful saying the pace of layoffs is slowing. That’s why the Fed kept a target range for its bank-lending rate at zero to 0.25 percent. This historic low level has been in place since last December. Bernanke repeated his pledge to keep interest rates at "exceptionally low levels" for an "extended period." The Fed says it can hold rates at super-low levels since it expects that inflation will remain "subdued for some time."


The Fed knows overall weakness in the economy remains due to sluggish spending, the weak job market and tight credit. That’s why the Federal Reserve Board delivered a bold and clear message that interest rates will remain low for the foreseeable future as long as economic confidence remains weak due to an economic crisis.


In response, commercial banks' prime lending rate, used to peg mortgage rates on home equity loans, certain credit cards and other consumer loans, will remain about 3.25 percent, the lowest point in decades.

Encouraging Signs During The Nation's Economic Crisis:

* Economy grew in the third quarter, after four straight losing quarters
* Historically low mortgage interest rates allow more home buyers to get loans
* Layoffs slowed as employers cut 11,000 jobs last month, the best since the recession started two years ago
* Unemployment rate dipped nationwide to 10 percent in November, down 0.02 percent from October


The Fed’s moves have definitely worked at driving down mortgage interest rates. Freddie Mac says mortgage rates on 30-year fixed loans averaged 4.81 percent last week, a big drop from last year’s 5.47 percent.


With signs of financial and housing markets stabilizing, the Fed said that it would end several emergency-lending programs next year, including support for money market mutual funds, short-term corporate lending, money to investment banks, and money to other nation’s banking systems.


The Fed in on track to buy a total of $1.25 trillion in mortgage securities from Fannie Mae and Freddie Mac by the end of March. So far, it has bought $845 billion.