Last night the Federal Reserve announced that it expects to keep interest rates in the US at their record low level until late 2014 – a move which sent the US dollar lower and gold sharply higher.
A 6 Month Chart of the US Dollar Index
A 6 Month Chart of Gold
Charts courtesy of Stockcharts.com
This latest move from the Fed is simply an extension of an earlier pledge to keep rates at 0.25% until “at least” the middle of 2013 and really shouldn’t have come as any great surprise.
The fact is ultra low rates are providing vital life support for the US economy. Moreover, negative real interest rates, that is, interest rates well below the true rate of inflation, are a key part of the Fed’s strategy for reducing the colossal $15.2 trillion federal debt.