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New window on Fed thinking: Interest rates to stay low until 2014

Delivering on a recent promise to convey its policy intentions more transparently to investors and the public, the Fed said it expected to keep short-term interest rates low into 2014.

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Federal Reserve Chairman Ben Bernanke takes part in a news conference at the William McChesney Martin Federal Reserve Board Building in Washington on Jan. 25, following the January Federal Open Market Committee meeting.

Jacquelyn Martin/AP

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The Federal Reserve delivered Wednesday on a promise of greater transparency on its policy outlook, giving a forecast that the interest rate it controls will stay low into the year 2014.

Previously, the Fed had said it would keep its short-term interest rate low through the middle of 2013.

In releasing its forecast, the central bank, for the first time, divulged the individual forecasts of its policy committee members on such things as the expected direction of interest rates over the next several years. That information, the Fed hopes, will help to convey its policy intentions more accurately to investors and the public.

The Fed also offered an official target for consumer price inflation – 2 percent a year – in its policy statement, a number consistent with guidelines the Fed has given in the past. The Fed's congressional mandate includes maintaining rough price stability, allowing neither runaway inflation nor a potentially devastating cycle of deflation that could push investors and consumers to the economic sidelines.

The views of policymakers were not linked with individual names, such as that of Fed Chairman Ben Bernanke. But the report gives a clear window into the gap between so-called inflation "hawks," and "doves," and those in between on policy.

In charts showing a dot for the position of each committee member, investors learned that six committee members believe policy should be tightened (such as by raising the interest rate modestly) this year or in 2013. Another five see 2014 as the likely timing for tightening. And six expect 2015 or 2016 to be the optimal time.

The Fed's report, following a scheduled policy meeting, also showed how fast a rise in interest rates policymakers view as healthy for the economy. A handful in the hawkish, inflation-wary camp would like to see the Fed's interest rate rising to about 1 percent this year and 2.5 percent by 2014. By contrast, a slim majority of the 17 forecasts shown call for the rate to remain below 1 percent even in 2014.

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