That was the meaning of the announcement of the US Federal Reserve that it anticipates holding its official interest rate, the so-called federal funds rate, at exceptionally low levels "at least" through mid-2013.
For now, Federal Reserve policy-setters have indicated that they envision the federal-funds rate remaining at extremely low levels until late 2014.
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The yield curve is flattening in America (the gap between the short-term federal funds rate and yields on ten-year Treasuries is only a smidgeon more than one percentage point) and in Britain it is inverted (long bonds yield less than shorter ones).
Interest rates on short-term loans do indeed tend to move in line with the federal-funds rate.
The central bank's monetary policy targets the federal-funds rate, which banks charge each other on overnight loans.
The target for the federal-funds rate, at which banks lend to each other overnight, has been between zero and 0.25% since December 2008.
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Thus the interest rate that the Fed pays should tend to put a floor under short-term market rates, including our policy target, the federal-funds rate.
If changes in the federal-funds rate do not feed through into market rates, the dollar or share prices, they will have little effect upon the economy.
Despite this logic and experience, the federal-funds rate has dipped somewhat below the rate paid by the Fed, especially in October and November 2008, when the Fed first began to pay interest on reserves.
Under more normal financial conditions, the willingness of banks to engage in the simple arbitrage noted above will tend to limit the gap between the federal-funds rate and the rate the Fed pays on reserves.
The Bernanke Fed also extended the forward guidance for the federal funds rate to remain in the zero-bound to mid-2015, while announcing that Operation Twist would remain active at least through the end of the year.
When the Fed pours money into the system with the purchase of mortgage-backed securities, combined with guidance from the Federal Open Market Committee that the federal funds rate will remain near zero at least through mid-2015, it depresses yields on debt instruments.
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Finally the zero to 0.25% federal funds rate was extended until at least mid-2015.
The Bernanke Fed has kept the interest rate on federal funds near zero since December 2008, and that rate is likely to persist until mid-2013, as announced at the latest meeting of the Federal Open Market Committee.
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In times of less turmoil, the central bank generally only deals with primary dealers, a group of 20 big banks and brokerage houses with which the New York Federal Reserve conducts its open-market operations, buying and selling government securities to guide the federal funds rate.
We now expect a 25-basis-point cut in the Federal funds rate and discount rate on Dec. 11.
The FOMC also discussed its economy-based guidance on the federal funds rate, which indicated the Fed will not raise rates as long as unemployment stays above 6.5% and longer-run inflation below 2.5%.
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Mortgage REITs borrow short-term or adjustable-rate money (the federal funds rate has plunged from 6.5% in January to 3.5% today) and use it to buy longer-term mortgages or mortgage-backed securities, playing the spread between the two sets of interest rates.
Operation Twist will continue to the end of this year and the benchmark federal funds rate will be kept near zero until at least mid-2015.
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In particular, observers look for Fed officials to discuss what to do when the program known as Operation Twist ends, as well as to discuss setting numerical targets to signal how long policy-setters will keep the target federal funds rate at essentially zero.
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Lowering the federal funds rate, its traditional weapon, tends to make the most impact on short-duration debt.
Another bad sign: The federal funds rate target of 4.75% remains higher than the yield on 10-year Treasurys.
In mid-August the Fed supplied enough liquidity to hold the effective federal funds rate, an overnight interbank rate, below its then target of 5.25%.
By keeping the federal funds rate close to zero for three more years, and switching from shorter to longer-term securities, the Fed hopes to spur investment and growth.
Pegging the federal funds rate close to zero for another three years and twisting the yield curve to lower longer-term rates will continue to misprice credit, penalize saving, and encourage risk.
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The Federal Reserve Board's cut in the target federal funds rate to 1% suggests they fear deflation, not stagflation, the worst scenario of all--what we had during 1982.
The FOMC has its hands on only the shortest of short-term interest rates the overnight rate at which banks can borrow federal funds.
The Fed should announce that it will let the federal funds interest rate float, at the same time removing some of the excess money it created in 2004--05.
If the federal funds rate were at, say, 3 percent, we would have, in my view, an open-and-shut case for reducing it.
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