The U.S. Federal Reserve Board effectively boosted monetary stimulus yet again Wednesday when it pushed out its commitment to low rates to the end of 2014. However, economists don’t expect this latest move to have much impact on the recovery.
The Fed said today that a low funds rate is likely warranted until “at least through late 2014”, pushing back its previous pledge to keep rates low through mid 2013. TD Economics says that by extending its conditional commitment for at least another year-and-a-half “the Fed is injecting additional monetary stimulus into the economy – albeit in an unconventional way.”
Yet, TD doesn’t expect this latest monetary policy action is “to be an economic game changer”. It points out that rates are already at historic lows, and the problem at this point isn’t the price of credit, it’s the lack of demand for it. “While today’s announcement should provide some push at the margin, it is unlikely to alter economic momentum in a significant way,” it says.
RBC Economics notes that while the U.S. economy has been showing signs of life, heightened uncertainty is undermining the global growth outlook. “Until there is a clearer path for the global economy and proof that the U.S. economy is able to grow fast enough to exert significant downward pressure on the unemployment rate, the Fed’s policy will remain extraordinarily stimulative,” it says.