US Fed holds interest rate at record low, continues money flow

14 December 2010 19:53  [Source: ICIS news]

WASHINGTON (ICIS)--The US Federal Reserve Board on Tuesday said it would continue efforts to stimulate the nation’s economy and decided to hold its key federal funds interest rate at 0-0.25% - a record low level that has now been in place for 24 months.

The Fed said that while the US recovery is continuing, progress toward higher employment levels and normal economic growth has been “disappointingly slow”.

In its statement about the US economy, the central bank’s rate-setting Federal Open Market Committee (FOMC) noted that “Household spending is increasing at a moderate pace, but remains constrained by high unemployment, modest income growth, lower housing wealth and tight credit”.

While business spending on equipment and software has been rising, that key sector has been expanding less rapidly than earlier in the year, the Fed said.

The Fed governors and top economists also noted that investment in non-residential structures - factories, office buildings, shopping malls - continues to be weak.

“Employers remain reluctant to add to payrolls,” the committee said, adding that “The housing sector continues to be depressed”.

The Fed said that it expects a gradual return to higher levels of employment, resource utilisation and growth but that “progress toward [these] objectives has been disappointingly slow”.

In hopes of speeding and strengthening the recovery, the Fed said it would continue its policy, announced last month, of buying US Treasury securities. The central bank renewed its commitment to purchase up to $600bn (€450bn) of Treasury securities by the end of the second quarter next year, acquiring the investments at a pace of about $75bn per month.

That securities-purchasing plan is designed to put more money into circulation and help lower long-term interest rates to spur more business borrowing and capital spending.

In announcing that it would keep the federal funds interest rate at 0% to 0.25%, the Fed said that it “continues to anticipate that economic conditions … are likely to warrant exceptionally low levels for the federal funds rate for an extended period”.

That suggests that the Fed expects to maintain the record-low interest rate well into 2011.

($1 = €0.75)

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