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Noting slower economy, Fed keeps key rate at zero

Wednesday, 29 April 2015 11:03 PM [ Last Update: Wednesday, 29 April 2015 11:16 PM ]

Janet Yellen, the chair of the US Federal Reserve

The United States Federal Reserve, also known as the Fed, has kept its main borrowing rate at zero percent, as America’s gross domestic product (GDP) slowed in the first fiscal quarter of this year.

The Federal Reserve’s announcement to keep the interest rate unchanged came on Wednesday, several hours after the US Commerce Department announced that the US economy slowed to just 0.2% in the first 3 months of 2015, much lower than the anticipated 1%.

Compared with growing at an annual rate of 2.2% in the last three months of 2014, the US economic growth is at its worst performance in a year.

According to the US Commerce Department, the reasons for the shocking GDP slowdown are attributed to falling oil prices, low consumer spending, and a harsh winter.

The Fed, said in a statement released, after its latest Federal Open Markets Committee (FOMC) meeting that the “economic growth slowed during the winter months, in part reflecting transitory factors,” reiterating, somewhat, the US Commerce Department’s reasons for the slowdown in the world’s biggest economy.

Also, the Fed statement added that, “inflation continues to run below the Federal Open Markets Committee’s 2% goal and the expectations of the current number increasing remains low.”

The Fed kept its rate at zero percent because of the gloomy economic outlook announced by the government.

The US economic growth rate for the first 3 months of 2015 was at a disappointing 0.2%, according to the US Commerce Department.

The Fed dropped the key interest rate to nearly zero percent in 2008 and then zero percent when the America fell into a financial recession triggering waves of economic turmoil across the globe.

Ever since that time, it has been a bouncy revival for the US economy. This year’s first fiscal quarter negative marking was only the latest delay.

Other measures were then taken by the Federal Reserve such as the controversial quantitative easing (QE) monetary policy program, which saw the Federal Reserve lend banks across the country, and in some cases to other countries, trillions of dollars which a lot of it is still unreturned, according to US economists.

Even though QE is over, many fear that because the US economy has still not recovered from a financial recession, any increase in the borrowing rates of the Fed, markets in the US and abroad could be shaken again.

Unless, according to the Fed, “further improvement in the labor market and is reasonably confident that inflation will move back to its 2 per cent objective over the medium term” the main interest rate will still be zero percent.

HDS/GJH

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