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Board of Governors of the Federal Reserve System
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Informing the public about the Federal Reserve

Why are interest rates being kept at a low level?

The financial crisis that began in 2007 was the most intense period of global financial strains since the Great Depression, and it led to a deep and prolonged global economic downturn. The Federal Reserve took extraordinary actions in response to the financial crisis to help stabilize the U.S. economy and financial system. These actions included reducing the level of short-term interest rates to near zero. In addition, to reduce longer-term interest rates and thus provide further support for the U.S. economy, the Federal Reserve purchased large quantities of longer-term Treasury securities and longer-term securities issued or guaranteed by government-sponsored agencies such as Fannie Mae or Freddie Mac. Low interest rates help households and businesses finance new spending and help support the prices of many other assets, such as stocks and houses.

By law, the Federal Reserve conducts monetary policy to achieve maximum employment, stable prices, and moderate long-term interest rates. Information received during the early months of 2015 suggests that economic growth moderated somewhat from the solid pace seen during the latter part of 2014. Labor market conditions have improved further, and a range of labor market indicators suggests that underutilization of labor resources continues to diminish. At the same time, inflation has declined further below the Committee’s longer-run objective, largely reflecting declines in energy prices. Although inflation is anticipated to remain near its recent low level in the near term, the Federal Open Market Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and transitory effects of energy price declines and other factors dissipate. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.

To support continued progress toward maximum employment and price stability, the Committee reaffirmed in its March 2015 statement its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will 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 and international developments. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term. The Committee has not yet decided on the timing of the initial increase in the target range for the federal funds rate; however, the Committee judges that an increase in the target range remains unlikely at the April FOMC meeting.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

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Last update: April 8, 2015