Fed to keep rates low till 2013

Finally, we get a strong rally in markets, thanks to the Fed. From Reuters:

The Federal Reserve on Tuesday took the unprecedented step of promising to keep interest rates near zero for at least two more years and said it would consider further steps to help growth, sparking a rebound in stocks.

The Fed painted a gloomy picture, saying that U.S. economic growth was proving considerably weaker than expected, inflation should remain contained for the foreseeable and unemployment, currently at 9.1 percent, would come down only gradually.

An unusually divided central bank pledged to hold benchmark rates at rock-bottom lows until mid 2013, and opened the door to other tools to support growth. The announcement demonstrated just how long the central bank expects it will take before a flagging economy can gather significant momentum...

U.S. stocks sank initially and then see-sawed wildly before a strong rally. The Dow ended up 4 percent at 429.92. Treasury yields sank with the 2-year note plunging to a record low of 0.1647 percent and the dollar sinking.

While the Fed is now set to maintain monetary stimulus, China has apparently already provided too much of it. AFP/CNA reports another rise in inflation there.

China said Tuesday its politically sensitive inflation rate rose in July to its highest level in more than three years, as the government struggles to rein in soaring food costs.

The country's consumer price index rose 6.5 per cent last month compared to a year earlier, the National Bureau of Statistics (NBS) said in a statement, the highest level since June 2008 when it reached 7.1 per cent...

Output from China's millions of factories and workshops rose 14 per cent year-on-year in July, it said, slightly slower than the 15.1 per cent recorded in June.

Retail sales, the main gauge of consumer spending in the world's second-largest economy, were up 17.2 per cent in July.

Fixed asset investment, a measure of government spending on infrastructure, rose 25.4 per cent in the first seven months of the year, the NBS said.