Fed Holds Key Rate Steady, Will Reduce Holdings ‘Relatively Soon’

Leaders of the U.S. central bank said Wednesday that they were holding their benchmark lending rate at a low level — in a range between 1 and 1.25 percent — for the time being.  

Federal Reserve officials said in a report issued after their two-day policy meeting that the world’s largest economy was growing at a “moderate” pace and the job market was improving, but that inflation remained a bit low.

The chief economist of Stifel Fixed Income, Lindsey Piegza, said the Fed appeared eager to raise interest rates back to a more “normal” level and might well approve an increase at its next meeting in September. Sara Johnson of IHS Markit said the next rate hike likely would be in December.

Fed officials cut short-term interest rates to nearly zero during the 2007-09 financial crisis to boost investment and growth. They said the recovering economy no longer needed so much help, so they have been gradually raising interest rates and are expected to boost them further in the future.

In a VOA interview, Piegza said keeping rates too low for too long might prompt investors to seek better returns by putting money into excessively risky areas.

During the recession, the Fed also tried to boost growth by cutting long-term interest rates, with a complex program that involved purchasing huge amounts of securities.  

Fed officials said they would keep these assets for the time being but indicated they would begin selling them off “relatively soon.” Fed officials have said they will take care to reduce these assets in a gradual way that will not disrupt markets.

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