Retracting period?

16 March 2010 By Martin Hutchinson

Retaining ultralow rates for a really extended period could depress savings rates, quash small business lending, boost inflation and increase dependence on foreign capital. If unemployment numbers trend better, rates could start rising sooner than the Fed’s language suggests.

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The Federal Open Market Committee voted to retain its exceptionally low interest rates for an extended period as it had in January. Kansas City Fed president Thomas Hoenig voted against the decision since he believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longerrun macroeconomic and financial stability.

The Federal Reserve's report on assets and liabilities of commercial banks (Release H8) shows commercial and industrial loans of $1,587.1 billion in February 2009, $1,450.7 billion in August 2009 and $1,292.4 billion at March 3. Total bank credit (including Treasury and other bond investments) declined 5.0 percent in the last year while deposits increased 5.3 percent and bank holdings of Treasury and agency securities increased 11.2 percent.

Fed statement

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