As detailed in previous articles on www.emergingmoney.com, BIll Gross, head of Pimco and the “Bond King,” stated in an interview that the Federal Reserve would maintain a low interest rate enviornment until 2014, possibly 2015.
Today in an official statement, the Federal Reserve confirmed that outlook.
“While indicators point to some further improvement in overall labor market conditions, the unemployment rate remains elevated. Household spending has continued to advance, but growth in business fixed investment has slowed, and the housing sector remains depressed.”
Leaving overnight lending rates at effectively zero for a six-year period — 2008 to 2014 — would ordinarily create significant inflation risk, as the pace of dollar creation could theoretically approach infinity.
However, inflation has remained below trend for the last three years of zero interest rate policy, making Fed watchers suspect that Ben Bernanke and company will have time to rein in as needed before hyperinflation emerges.
The Fed notes that recent inflation has actually been “subdued” despite low interest rates and that price pressure “will run at levels at or below” its targets for at least the rest of 2012.
Traders remain more skeptical. Gold (GLD, quote) prices spiked going into this announcement and remain strong, up 2% on the prospect that its role as an inflation hedge will once again come into play.