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WASHINGTON: The US Federal Reserve kept its near-zero interest rate policy on Wednesday and maintained a trillion-dollar support of the ailing economy, saying had "continued to pick up" since September.
The policy-setting Federal Open Market Committee (FOMC), headed by Fed chairman Ben Bernanke, said after a two-day meeting that "although economic activity is likely to remain weak for a time," its policy actions would support economic recovery.
The committee held the federal funds rate at zero to 0.25 percent and said it expects "exceptionally low levels of the federal funds rate for an extended period."
Most analysts had expected the central bank to hold the near-zero base rate, where it has been since last December to help kick-start the economy out of the worst downturn since the Great Depression.
The economy grew for the first time in a year in the third quarter - at a 3.5 percent annual rate in the July-September period - largely spurred by government stimulus spending.
Since its last meeting on September 22-23, the FOMC said the information it had received "suggests that economic activity has continued to pick up," except in the financial markets, which were "roughly unchanged."
The housing market, the epicentre of the global financial crisis, has shown an increase in activity in recent months, the Fed said.
Consumer spending, which traditionally drives two-thirds of US economic activity, appeared to be expanding "but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit."
While businesses were still cutting back on fixed investment and staffing, albeit at a slower pace, the central bank said they were making "progress" in aligning inventory with sales.
"The committee anticipates that policy actions to stabilise financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilisation in a context of price stability."
The central bank said it expects inflation to remain subdued "for some time" as "substantial resource slack" likely will continue to dampen cost pressures "and with longer-term inflation expectations stable."
"In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability," the committee said.
The central bank announced a minor step to scale back its trillion-dollar support of the economy and the financial sector.
The central bank said it would purchase about 175 billion dollars of government debt, down from a previously announced 200 billion dollars, saying the move was "consistent with the recent path of purchases and reflects the limited availability of agency debt."
It also said it would buy 1.25 trillion dollars of government agency mortgage-backed securities as previously announced.
"In order to promote a smooth transition in markets, the committee will gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities and anticipates that these transactions will be executed by the end of the first quarter of 2010."
The FOMC, which approved the monetary policy unanimously, said it would 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 programs as warranted." - AFP/de
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