by Calculated Risk on 8/22/2009 01:37:00 PM

From Felix Salmon at Reuters: Fed official: rates to be kept low past upturn (ht Anthony)

Financial markets have not fully understood that the U.S. Federal Reserve's pledge to keep interest rates exceptionally low for an extended period means they will stay low beyond when officials normally would raise them, a top Fed official said on Friday.

"I don't think markets have really digested what that means," St Louis Fed President James Bullard said in an interview.

The Fed's strategy is aimed at promoting a future rise in inflation, which should provide an immediate boost in activity in anticipation of a future boom, but that hasn't happened, Bullard said.

Bullard is repeating the FOMC statement:

The Committee ... continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

Bullard thinks the markets haven't "digested what that means" - rates will be low for a long time - maybe through much or all of 2010.

Here is an interview with Bullard on a few other subjects, expects slow growth, discusses unwinding current policy.