Last Wednesday, the Fed announced after its Federal Open Market Committee (FOMC) meeting that it’s now forecasting just 2.2% to 2.7% GDP growth for 2012. The FOMC also forecasts an unemployment rate of 8.2% to 8.5% for 2012. Finally, the Fed provided its first-ever interest rate forecast, predicting that long-term rates will eventually rise to 4% to 5% — up substantially from current 10-year Treasury bond yields of 1.93%.
The biggest news coming out of the Fed’s unprecedented series of announcements last week was that the central banks pledged to extend its current 0% interest rate policy through at least late 2014. This shocking news is essentially an 18-month extension from the Fed’s previous guidance of low rates through mid-2013. Fed Chairman Ben Bernanke’s official reason for extending 0% short-term rates for six years (i.e., from late 2008 to late 2014) is that the U.S. economy remains &l