.S. Federal Reserve officials on Wednesday left interest rates near zero to bolster the economic recovery, while upgrading their reading of the economy.
At the end of its two-day meeting, the Fed’s rate-setting committee affirmed its plan to keep interest rates at a record low for an extended period in the face of still high unemployment and low inflation.
But the U.S. central bank was slightly more optimistic compared to a month ago about the recovery prospects in the world’s largest economy following its severe downturn.
“Information received since the Federal Open Market Committee met in September suggests that economic activity has continued to pick up,” the central bank said in a statement.
The Federal Open Market Committee voted 10-0 to maintain the target federal-funds rate for interbank lending at a record-low range of zero to 0.25%.
Since the financial crisis began in 2007, the Fed has slashed its benchmark lending rate from a peak of 5.25% to hit its current level near zero in December 2008. The central bank has also passed a slate of emergency measures to lift credit markets and lending.
Fed officials cautioned that weakness in the labor market was limiting consumer spending, putting a brake on the recovery – and keeping inflation under wraps.
But they were more optimistic on growth prospects compared to September, saying household spending seems to be expanding.
Even though the economy is likely to remain weak for a time, the Fed’s emergency measures, record-low rates and the government’s stimulus “will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in the context of price stability,” the FOMC said.
Economic data since the last Fed meeting Sept. 23 has continued to show that the worst recession since the Great Depression appears to be winding down, with clear improvements in manufacturing and the housing sector.
Gross domestic product, a broad measures of economic activity, rose by an annualized 3.5% in the third quarter as the U.S. government’s massive stimulus boosted consumer spending.
But with unemployment high and inflation low, the Fed stuck to the line that its key lending rate has to remain at a record low “for an extended period.”
The U.S. employment report for October, out on Friday, is expected to show that the jobless rate stayed close to a 26-year high of 9.8% in September.
As the global economy recovers, some of the world’s central banks have either started or are preparing to hike rates and to unwind the massive stimulus pumped into their economies to prevent a build up in inflation.
The Fed reduced to $175 billion from $200 billion its purchases of agency debt and reiterated plans to complete $1.25 trillion in mortgage-backed securities purchases by the end of March, 2010.
By Luca Di Leo – DOW JONES NEWSWIRES
The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity program as warranted.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.
Add A Comment