Interest Rates to Remain Low

Policy makers, including Fed Chairman Ben Bernanke, are feeling confident in the economy’s growth for the first time since August last year. Despite this confidence, they have promised to keep rates low for an extended period of time.

The Commerce Department announced yesterday that the economy had grown in the third quarter for the first time in more than a year. Gross domestic product grew at a 3.5% pace, exceeding the expectations of economists. This was the first growth for the GDP after four consecutive quarters of loss.

The S&P 500, after climbing 56% from a 12 year low set in March, has fallen 3.6 % from the 2010 high set October 19th. Fed officials said in their August Federal Open Market Committee meeting, that they plan to gradually reduce their pace of buying Treasuries in the hope of creating a smooth transition in the market. The program was originally supposed to end in October.

The Fed’s Treasury purchases have caused some investors to fear that they were monetizing government debt. Those fears were alleviated with the Fed’s announcement of an end to the program, causing yields to rise again.