The US dollar remains the world’s reserve currency but confidence has been shaken by the fiscal brinkmanship in the US and the downgrade of its sovereign rating. The economy is doing poorly and there is little hope of any significant improvement in the near future.
First, the Committee said that, in determining how long to hold the federal funds rate near zero, it “will assess progress – both realized and expected – toward its objectives of maximum employment and 2 percent inflation”; it also indicated that, in making this assessment, it would take into account a wide range of information, “including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments.”4 Second, the Committee indicated, “based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends” – a time-based reference, since the Committee has indicated that it expects to wind down its asset purchases by the end of this year if the economy continues to evolve as expected.5 Of course, the actual timing of liftoff will depend on the performance of the economy.