26 Jan 2012

US interest rates on hold until 2014

12:05 pm on 26 January 2012

The US Federal Reserve says it will not raise interest rates until at least late 2014, in an effort to support a sluggish economic recovery.

That's much later than an earlier projection of mid-2013.

The central bank made no major shifts to its outlook for the economy though it described unemployment as elevated and said it expected inflation to remain in check.

The bank said business investment had slowed, downgrading its assessment from the December meeting.

Economic conditions "are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014," the central bank said in a statement.

Markets rallied after the announcement, with Wall Street closing up about 1%.

Rates near zero

In response to the deepest recession in generations, the Fed slashed the overnight federal funds rate to near zero in December 2008.

The central bank has also more than tripled the size of its balance sheet to around $US2.9 trillion through two separate bond purchase programs.

Reuters reports the policy is credited with having prevented an even more devastating downturn but has been insufficient to bring unemployment down to levels considered normal during good economic times.

In December, the US jobless rate stood at 8.5% and some 13 million Americans were still actively looking for work but could not find it.