The Federal Reserve Bank under Ben Bernanke is unconvinced that a full recovery is in place. On account of this, the Fed will keep benchmark rates low for an extended period of time. The Fed does not believe the economy is growing fast enough to ignite inflation or to lower unemployment in any significant way.

The Fed believes employers are still reluctant to hire new workers and homebuilding is still depressed. Inflation is not a factor, according to the Fed, because the economy is not yet strong enough and there is still slack in the economy. Without demand, inflation is very unlikely.

The wording “extended period of time” has been the mantra of the Fed for quite some time. The Federal Reserve Bank does not wish to raise rates, possibly causing a double dip recession. They would rather risk a bit of inflation than have the economy go into the tank again.

Joseph Stiglitz, the noted economist, forecasts more bank failures and foreclosures this year. This reinforces the fear of the Fed to go too fast in lowering rates. Little by little the Fed is withdrawing its backstops for the banks and the economy. Withdrawing stimulus too fast can send the economy into a tailspin.