Fed Promises To Keep Rates Low


Ben Bernanke

Despite a promise from the Federal Reserve to keep interest rates low, until the economy improves, the Dow Jones finished in the red once again.  In order to avoid adding to the prospects of the fiscal cliff, the Fed said it would hold rates down until unemployment dropped below 6.5%.  The move ensures mortgages and loans for businesses continues to be easily affordable.  Both are crucial if the recovery is to continue.  At first the markets responded favorably, appearing that a rally was to be sustained but after the reality of the looming fiscal cliff was realized, the rally quickly faded.  If Congress and the President do not reach a deal, even low-interest rates won’t be enough to save the economy from plunging back in to a recession.  One need not be an economist to understand basic math and the market responded accordingly.  The central bank said that although the economy continues to grow, “at a moderate pace” job creation continues to be slow.  The Fed’s projects that unemployment will hover at or near current levels in 2013.  However, if no agreement is reached, and it appears the two sides are still far apart, expect unemployment to rise significantly.  One positive on the jobs front; it seems that President Obama is willing to discuss lowering the corporate tax rate from the current 35% which is why companies leave our shores for greener pastures.  To put it in to perspective, our friends in Canada lowered the corporate tax rate as of January 1, 2012, to 15%.

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