Fed Will Keep Rates Low

Wednesday, June 23, 2010

The Federal Reserve indicated that Europe's debt crisis poses a risk to the U.S. economy and pledged to hold rates at record lows to make sure the recovery stays on track.

The Associated Press reports that after a two day meeting, the Fed voted 9-1 to hold rates at record-low levels for an "extended period."  In a statement, the Fed said this would energize the economic rebound, and expressed optimism that the economy is on track to recover.

While not mentioning Europe by name, the Fed said "financial conditions have become less supportive of economic growth ... largely reflecting developments abroad."

Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, for the fourth straight meeting was the sole member to dissent from the Fed's decision to retain the "extended period" pledge.

Hoenig fears keeping rates too low for too long could lead to excessive risk-taking by investors, feeding new speculative bubbles in the prices of stocks, bonds and commodities. He's also expressed concern that low rates could eventually unleash inflation.

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