The Federal Reserve could remove some of the extraordinary support it has extended to the U.S. economy once the recovery looks solid and monthly job growth has returned. St. Louis Federal Reserve Bank President James Bullard said he would not favor tightening monetary policy before recovery was well-established.
The central bank, wary of undercutting the fragile recovery by withdrawing its support too soon, is also on guard for any indication that its emergency lending efforts are fueling an unwelcome bout of inflation as the economy heals.
The Fed cut the benchmark the federal funds rate to near zero last December and put in place a vast array of emergency liquidity facilities in an effort to combat the worst financial crisis and recession since the 1930s.
As part of its emergency efforts, it has bought long-term government and mortgage-related debt to try to drive down borrowing costs.
The central bank has pledged to keep interest rates extraordinarily low for “an extended period”. Most analysts expect it to hold rates near zero until mid-2010 or later.
Source : cnbc.com
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