Fed on Hold Longest Since 1940s as Curve Shows Slow Growth

Bloomberg Businessweek reports:

The Federal Reserve may keep interest rates at record lows for the longest period since World War II as the economic slowdown that sparked a four-month bond rally worsens, according to Treasury market signals.

The 3-percentage-point gap between yields for three-month and 10-year Treasuries indicates the economy may grow 1.1 percent in the 12 months ending June 2012, a study by the Fed Bank of Cleveland says. That’s less than half the central bank’s current forecast, and may delay any rate increase from the zero- to-25 basis point range held since December 2008.

Slower expansion means the Fed is unlikely to tighten credit until June 2012, the longest static period since the government forced the central bank to buy Treasuries during the 1940s. Any spending cuts agreed by President Barack Obama and Congress before the Aug. 2 deadline to raise the $14.3 trillion debt limit may restrain the economy.