WASHINGTON: The Federal Reserve signaled Wednesday that a full economic recovery could take nearly three more years, and attempted strongly to assure consumers and businesses that they will be able to borrow money cheaply well into the future.
The central bank said it would probably not increase its benchmark interest rate until late 2014 — a year and a half later than it had previously said.
The new timetable showed the Fed is concerned that the recovery remains stubbornly slow. But it also thinks inflation will stay tame enough for rates to remain at record lows without igniting price increases.
Chairman Ben Bernanke cautioned that late 2014 is merely a “best guess.” The Fed can shift that plan if the economic picture changes. But he cast doubt on whether that would be necessary.
The Fed has kept its key rate at a record low near zero for about three years.
The bank’s tepid outlook also suggests it’s prepared to do more to help the economy. One possibility is a third bond-buying program that would seek to further drive down rates on mortgages and other loans to embolden consumers and businesses to borrow and spend more.
Treasury yields fell after the midday announcement. But yields stopped falling after the bank later issued forecasts for the economy and interest rates. They showed that while some members foresee super-low rates beyond 2014, six of the 17 members forecast a rate increase as early as this year or next.
It was the first time the Fed had released interest-rate forecasts from its committee members. It will do so four times a year, when it also updates its economic outlook.
The central bank slightly reduced its outlook for growth this year, from as much as 2.9 percent forecast in November down to 2.7 percent. For the first time, the Fed provided an official target for inflation — 2 percent — in a statement of its long-term policy goals.
The bank sees unemployment falling as low as 8.2 percent this year, better than its earlier forecast of 8.5 percent. December’s unemployment rate was 8.5 percent.