The Federal Reserve on Tuesday maintained record low interest rates in the hope of stimulating a still fragile US economic recovery, dogged by high unemployment and tight credit.
After a one-day meeting, the Federal Open Market Committee (FOMC) voted 9-1 to keep the federal funds rate -- at which banks charge each other for loans -- at an unprecedented zero to 0.25 percent range, a central bank statement said.
The Fed said it expected to hold the "exceptionally low" rate "for an extended period" -- reiterating its standard guidance since it slashed rates to record lows in December 2008 in a bid to jolt the world's largest economy from its worst recession in decades.
The central bank offered a slight upgrade to its view of the economy in the statement issued after the six-hour meeting chaired by Fed boss Ben Bernanke.
It said "economic activity has continued to strengthen and that the labor market is stabilizing" -- a more upbeat description than the phrasing used after its last policy meeting in January that "the deterioration in the labor market is abating."
The statement also noted that consumer spending was constrained by "high unemployment," rather than the previous "weak labor market," which some analysts said shifts the focus away from job growth to the unemployment level, hovering at nearly 10 percent.
Text of the US Federal Reserve statement
After not mentioning housing, the epicenter of the financial crisis that plunged the US economy into recession, in the last statement, the Fed said Tuesday that new housing projects "have been flat at a depressed level."
"Despite noting some improvement in labor market data, the Committee gave no indication that it would proceed with the next phase of the exit strategy soon; rather, it maintained flexibility by saying it would use its policy tools as needed to promote economic recovery and price stability," said analyst Dean Maki of Barclays Capital Research.
"The next key event is likely to occur when the Fed alters its 'extended period' language in favor of something less committal; we think this change is likely to be made in second quarter, and it may occur as soon as the April meeting if labor market data strengthen notably, as we expect," he said.
The Fed also stressed that the pace of economic recovery was likely to be "moderate" for sometime.
It said American households remained reluctant to spend amid high unemployment, modest income growth, lower housing wealth, and tight credit.
Employers also remained reluctant to add to payrolls and bank lending continued to contract, the Fed reported.
Kansas City Fed president Thomas Hoenig was, for the second meeting in a row, the sole dissenting voice to the FOMC decision.
He expressed concern that the promise of low interest rates for the long-run could present economic risks.
Hoenig believed "the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted," the Fed statement said. Such low rates could "increase risks to longer-run macroeconomic and financial stability."
"However, the majority of the FOMC would agree with us that removing this phrase now would lead to an unwarranted rise in interest rates across the yield curve," said Brian Bethune, financial economist for IHS Global Insight.
The yield curve is what economists use to capture the overall movement of interest rates -- which are known as "yields" in Wall Street parlance.
"Credit, housing and employment markets are still too weak to be able to withstand this kind of negative pressure, and we agree with the majority of the FOMC on this score," Bethune said.
US authorities pumped hundreds of billions of dollars into the world's largest economy to jolt it from a deep recession since December 2007.
The economy started growing from the second half of last year -- at 2.2 percent in the third quarter and 5.9 percent in the final quarter of 2009.
Many believe the Fed will need to raise rates gradually to keep inflation in check.
The Fed policy makers also confirmed at the meeting Tuesday that the central bank will complete purchases of 1.25 trillion dollars of mortgage-backed securities by the end of this month.
The program has been widely credited with pumping up the housing market, which was at the epicenter of the financial crisis triggered by a mortgage meltdown.
Copyright 2010 AFP Global Edition
