Fed keeps record-low interest rate as US recovery stays sluggish

24 October 2012 20:07  [Source: ICIS news]

WASHINGTON (ICIS)--The US economic recovery is continuing but still at only a moderate pace, the Federal Reserve Board said on Wednesday, noting that job growth has been slow, unemployment remains high and business expansion has slowed.

In light of its still cautious outlook for the nation’s economy, the Fed said that it would maintain its record-low key interest rate at 0-0.25%.

That rate, first set in December 2008, is within weeks of its fourth anniversary, and the Fed statement again noted that the central bank expects to maintain that extraordinarily low rate until mid-2015 at least.

In the statement from the Fed’s rate-setting federal open markets committee (FOMC), the central bank managers noted that while the US housing sector has shown “some further signs of improvement”, that gain must be measured against the sector’s long-depressed level.

The Fed said that without the record-low interest rate and other measures the central bank is taking to drive down long-term borrowing costs, “economic growth might not be strong enough to generate sustained improvement in labour market conditions”.

In an indication that the central bank governors are increasingly worried about the US employment situation, the Fed said that it might take still further steps to try to stimulate more growth.

If the outlook for the labour market does not improve substantially,” the Fed statement said, “the committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases and employ its other policy tools as appropriate until such improvement is achieved”. 

The Fed said that it would continue its most recent stimulus initiative to purchase mortgage-backed securities at a pace of $40bn (€30.8bn) each month.

That policy, along with earlier steps, “should put downward pressure on longer-term interest rates, support mortgage markets and help to make broader financial conditions more accommodative”, the statement added.

($1 = €0.77)

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy


By: Joe Kamalick
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