Jul 12, 2013

    US Fed likely to keep interest rates near zero

    UNITED States Federal Reserve chairman Ben Bernanke said on Wednesday that the Fed was likely to extend the centrepiece of its campaign to bolster the economy - keeping short-term interest rates close to zero - even as it prepares to wind down another key stimulus programme that faces mounting internal opposition.

    He has begun to pave the way for the Fed to scale back on its efforts to cut borrowing costs for businesses and consumers through the monthly purchase of vast quantities of Treasuries and mortgage-backed securities.

    A growing number of Fed officials want the bond-buying programme to end more quickly. Mr Bernanke sought to emphasise that an end to bond buying would not signal a broader change in the Fed's commitment to support economic expansion and reduce unemployment.

    "The overall message is accommodation," he told a gathering of economists. "There is some prospective, gradual and possible change in the mix of instruments, but that shouldn't be confused with the overall thrust of policy."

    The Fed has said that it plans to hold short-term interest rates near zero at least as long as the unemployment rate remains above 6.5 per cent

    Mr Bernanke echoed recent remarks by other Fed officials in suggesting that it was likely to maintain its suppression of short-term interest rates for some time after unemployment dropped below that threshold, and that officials were considering lowering the threshold.