• Gold: 1,488.55 0.87
  • Silver: 17.55 0.03
  • Euro: 1.113 -0.000
  • USDX: 97.518 0.19
  • Oil: 54.48 0.84

FOMC Pushes Unchanged Rates Forecast Out to 2014, Fed Sets Inflation Target

|
February 2, 2012 - 2:57pm

Among the recent price consolidation, it should not be forgotten that the U.S. Federal Open Market Committee of the Federal Reserve Board decided to leave rates at 0.0% to 0.25% until at least late 2014, according to the FOMC statement released on January 25th.

In their statement, “the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”

In addition, the Fed indicated on January 25th that it would release the projected direction of interest rates by its seventeen members and would take the historic move of setting an inflation target of two percent. Nevertheless, putting off the first possible adjustment to rates until late 2014 somewhat eclipsed the Fed’s apparent intention of increasing transparency, while at the same time sending further signals for diversifying out of paper.

Bernanke Reassures Market That the Fed Has Options

In the press conference following the FOMC statement, Fed Chair Ben Bernanke clarified that the decision to leave interest rates unchanged for over three years was not cast in stone. He noted that the bank’s capacity to forecast out that far was limited, but that the Fed could adjust rates depending upon economic conditions.

Bernanke said that the United States economy remains weak and indicated that all the signs point to exceptionally low rates for at least three more years. "Unless there is a substantial strengthening of the economy in the near term, I would think that it's a pretty good guess that we will be keeping rates low for some time from now."

When asked about improving economic conditions domestically, Bernanke responded, “There has certainly been some encouraging news recently,” but he also noted that “At the same time we've had mixed results in other areas such as retail sales, and we're seeing headwinds from Europe.”

Bernanke also indicated that the Fed had not ruled out additional steps to bolster economic growth such as another round of bond purchases, "I would not say we are out of ammunition. We still have tools."

Effect of FOMC Statement on Precious Metals

Precious metals reacted favorably to the FOMC statement, with the price of gold rising over $1,700 and the price of silver, which had seen a dramatic rise over the past week, rose over the $33 per ounce level. And while technical ‘gap-filling’ and consolidation are in play, the statement may be enough to bring new money in the dips.

In addition, with the Fed indicating it may begin bond repurchases, some analysts consider this as a sign the central bank might begin a third round of Quantitative Easing or QE III, if the economy does not make substantial improvements in the near future.

This would be bullish for metals as low interest rates make holding precious metals more attractive and less expensive to maintain positions. Injecting more funds into an already saturated market will only dilute the value of the U.S. Dollar further, continuing to make a case for holding physical precious metals.

Dr. Jeffrey Lewis

www.silver-coin-investor.com

Your rating: None Average: 2 (1 vote)

About Dr. Jeffrey Lewis / Commentary Author

"In addition to running a busy medical practice, Dr. Jeffrey Lewis is the editor and publisher of Silver-Coin-Investor.com, where he provides practical information for precious metals investors".

Article Comments

Sponsored Links

Live SilverSeek Map