Fed: Economy better, rates to stay low

The Federal Reserve stated that it see further signs of improvement in the U.S. economy, but not enough to start raising key interest rate from near 0% anytime soon. The Fed's statement Wednesday once again spoke of a U.S. economy now in recovery, stating that "economic activity has continued to strengthen and that the labor market is beginning to improve." But the central bank made little change in its language used to describe the outlook for its policy, saying it expects that economic conditions will "warrant exceptionally low levels of the federal funds rate for an extended period," as it has at every meeting since June of last year.

The fed funds rate, the central bank's key overnight lending rate, is a benchmark used to set interest rates on a wide variety of consumer and business lending. In December 2008, the Fed cut the rate to near 0% in an effort to spur economic activity, and has left it there ever since. "The Fed feels more comfortable with the recovery, as we all are. But the pace of the recovery is still disappointing," said Silvia. "If housing is at depressed levels and hiring is still weak, what's going to happen if they start to raise rates?"

But other economists are worried that the low rates and the trillions of cash that the Fed has pumped into the economy through various programs will feed inflation and a new asset bubble. Raising rates and pulling cash out of the economy are the tools the central bank typically uses to keep prices in check. Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, said even with the economic weakness, it would be safer for the Fed to start taking the first steps to raise rates, including more hawkish language in its statement.