inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period." The Fed has kept interest rates near zero at every meeting since December 2008. Stocks (DOW:DJIA) gathered momentum after the Fed's decision. The dollar (BOARD:DXY) pared gains. Treasury (U.S.:UST10Y) prices stayed down. Read MarketWatch comprehensive coverage of Wall Street. The Fed recently stressed that its pledge to keep rates low is conditioned on the forecast of high unemployment and subdued inflation and inflation expectations. Core consumer inflation has declined in recent months. Core consumer prices, excluding food and energy prices, fell to a 1.1% annual rate in March, the lowest level since January 2004. The rate was 2.5% in June 2008. With inflation declining, the Fed can afford to be patient, hoping that the better economic data translates into a falling unemployment rate in coming months. The unemployment rate has remained steady at 9.7% over the past three months. The rate peaked at 10.1% in October. The Fed's strategy is working and they want to stick with it, said Brian Bethune, chief U.S. financial economist at HIS Global Insight. The economy is in a "sweet spot" with solid growth and inflation is low, Bethune said. "The economy will still have to expand at a decent rate for several more quarters before we get decent job growth," Bethune said. The economy has shed 8.5 million jobs in the recession. And unemployed workers are finding it more difficult to find jobs. Low short-term rates also act as a tonic for the battered financial sector, allowing companies to borrow cheaply and lend or invest at higher rates. The Fed statement said that housing starts "have edged up but remain at a depressed level."
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2010 Media Report Villanova School of Business