Home > Current FAQs > Money, Interest Rates, and Monetary Policy

Current FAQs

Informing the public about the Federal Reserve

Clear communication is always important in central banking, and is especially important in the present circumstances when the economy requires further policy stimulus but the traditional tool of monetary policy, the target for the federal funds rate, is already effectively as low as it can go. (Since December 2008, the Federal Reserve's target for the federal funds rate has been between 0 and 1/4 percent.) Through "forward guidance," the Federal Open Market Committee (FOMC) provides an indication to households, businesses, and investors about the stance of monetary policy expected to prevail in the future. By providing information about how long the Committee expects to keep the target for the federal funds rate exceptionally low, the forward guidance language can put downward pressure on longer-term interest rates, making mortgages more affordable for homebuyers and lowering the cost of borrowing for businesses.

The Fed's forward guidance appears to have been effective. Over time, both investors and private forecasters have pushed out considerably the date at which they expect the federal funds rate to begin to rise. Moreover, current policy expectations appear to align well with the FOMC's forward guidance, apparently reflecting a growing appreciation of how forceful the FOMC intends to be in supporting a sustainable recovery. In addition, the behavior of financial market prices in periods around changes in the forward guidance is also consistent with the view that the guidance has affected policy expectations.

Following their September 2012 meeting, Federal Reserve policymakers indicated that, to support continued progress toward maximum employment and price stability, the FOMC expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent, and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.