federal reserve

By Jim Puzzanghera,
December 17, 2014

The American economic outlook, bolstered by robust job growth and a sharp drop in gasoline prices, was boosted a little more with the Federal Reserve’s signal that it would take as long as three years to raise interests to once-normal levels.

Fed officials, concluding their last meeting of the year Wednesday, issued a statement that essentially left their easy-money policy in place, indicating that their key interest rate would stay near zero for at least a few more months.

And the longer they take in lifting rates, the longer consumers are likely to enjoy lower mortgage and credit card rates and businesses get cheaper borrowing costs. In addition, the Fed continued to give a more upbeat view of the economy, particularly the job market.

Fed Chairwoman Janet L. Yellen said in a news conference after the two-day meeting that Russia’s weakening economy, hampered by international sanctions and plummeting oil prices, weren’t a serious threat to the American economy. Indeed, she saw the plunge in oil prices as a positive for the U.S.

Yellen noted that policymakers could bump up rates any time depending on shifts in economic data, but she took pains to assure markets that the central bank was likely to maintain a highly supportive monetary policy for a long time.

Investors cheered and stocks surged, recouping some of the losses in recent days, even as three Fed policymakers dissented and some analysts expressed concerns that Yellen and her colleagues were moving too slowly to return interest rates to more normal levels.

“When are rate hikes coming, for gosh sake? This waiting around is getting ridiculous,” said Chris Rupkey, chief financial economist at the Bank of Tokyo-Mitsubishi in New York, clearly annoyed at the Fed’s muddled statement.

Mark Zandi, chief economist at Moody’s Analytics, viewed the move as positive, though he noted that the Fed took “a baby step” when the markets were expecting “a man-sized step” toward higher interest rates.

“They’re making this transition very gracefully, at least so far,” he said. “I think the man on the street should be pretty happy with the way things are going.”

The Fed’s benchmark rate has been near zero since December 2008 in an attempt to fight the Great Recession and boost the sluggish recovery.

Yellen acknowledged that the economy still has a way to go before it regains full health, saying the Fed would “be patient” in deciding when to raise interest rates.

And when it does, she said, the Fed would inch rates up so gradually that they wouldn’t get near the longer-run average of 3.75% until the end of 2017.

Financial markets rallied. The Dow Jones industrial average jumped 288 points, or 1.7%, to close at 17,356.87.

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