US Fed holds rate steady, says recovery pace ‘disappointing'

26 January 2011 20:01  [Source: ICIS news]

WASHINGTON (ICIS)--The US Federal Reserve Board said on Wednesday it would continue to hold its current record-low interest rate at 0–0.25% “for an extended period”, noting that while the US economic recovery continues, “progress has been disappointingly slow”.

The Fed’s rate-setting Federal Open Markets Committee (FOMC) said that since its last meeting in December, new data confirmed that “the economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labour market conditions”.

“Growth in household spending picked up late last year, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit,” the committee said.

“Business spending on equipment and software is rising, while investment in non-residential structures is still weak,” the statement said, adding that “Employers remain reluctant to add to payrolls” and the nation’s housing sector continues to be depressed.

Noting that inflationary pressures continue to be low, the Fed said that it would move forward with its previously announced plan to buy up to $600bn (€438bn) in US Treasury securities by the end of the second quarter this year.

That policy was designed to pump still more cash into the US economy in hopes that with higher liquidity, banks would be more willing to make loans to businesses. 

The influx of Fed funds into the nation’s money supply also has the effect of lowering the US dollar against foreign currencies, which makes US exports more price-competitive abroad.

The committee said that it expects to maintain the current 0–0.25% federal funds interest rates for an unspecified but perhaps lengthy period.

“The committee continues to anticipate that economic conditions, including low rates of resource utilisation, subdued inflation trends and stable inflation expectations are likely to warrant exceptionally low levels for the federal funds rate for an extended period,” the statement said.

($1 = €0.73)

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