The Federal Reserve got a lot of positive attention recently when it said it would keep interest rates low for at least two years, until mid-2013. But the reason why the Fed made that announcement got far less attention: The Fed is keeping interest rates low because it has serious doubts about the prospects for U.S. economic growth in the near future.
"The tone of the Fed's statement is very downbeat. They are very nervous about the economy," Mark Zandi, chief economist at Moody's Analytics, told The Associated Press. "This is unprecedented for the Fed to indicate they are ready to keep rates low for two more years."
The Fed previously predicted a fair amount of economic growth, but it now says growth has been "considerably slower" than it first thought. The Fed also said consumer spending "has flattened out" -- which is troubling because of the high importance of consumer spending in our economy. And it said the economy is likely to be weak for two more years!
We hope low interest rates spur growth, but our economy clearly is far from being out of the woods.