Rates To Stay Low, For A While

With the threat of a depression likely to have passed, most economists believe the economy has begun at least a modest recovery. But the Fed hasn’t moved the lending rates from all-time lows, and isn’t expected to do so for the foreseeable future; maybe not even until 2011, CNN Money reports.

Fed funds futures on the Chicago Board of Trade, which track the key rate, show investors aren’t betting on a hike anytime next year. Fed Chairman Ben Bernanke has repeated frequently that one of the problems of the Great Depression was that the Fed raised rates too quickly when the economy first showed signs of life, causing a second, much more painful downturn that extended the Depression for years.

Economists say they think the chairman, and many other policymakers, are willing to wait too long to raise rates, than risk hiking them too soon. In recent statements issued after policy-making meetings, the Fed keeps cautioning that it expects economic conditions “likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

Leaving rates at such levels is not without significant risks. Low rates can sow the seeds of inflation, which can eat into workers’ earnings and squeeze budgets. It also has been blamed for the fall in the value of the dollar versus other major currencies, such as the euro, which in itself can limit Americans’ buying power.