The US Federal Reserve held interest rates at 45-year lows on Tuesday as policy-makers renewed a commitment to keep borrowing costs down for a lengthy period, but said the threat of falling prices had eased.
Analysts said the decision, and a Fed statement that risks of a drop in inflation now were balanced by chances of a pickup in price pressures, meant the central bank was preparing the ground for eventual interest-rate hikes.
"It's the first step in a long process for them in tightening monetary policy, which at the earliest will be the middle of next year," said economist Mark Zandi of Economy.com in West Chester, Pennsylvania.
UNANIMOUS VOTE
For now, though, policy-making members of the Federal Open Market Committee (FOMC) voted unanimously to keep the federal funds rate charged on overnight loans between banks at 1 percent, the lowest since 1958.
The statement reflected policy-makers' evident belief that an economic recovery from mild recession in 2001 was gaining strength, and that they had increasing confidence that a threat of punishing deflation was fading into the background.
"The probability of an unwelcome fall in inflation has diminished in recent months and now appears almost equal to that of a rise in inflation," the Fed said.
It acknowledged, however, that there was a lot of ground to be covered before dangerous price rises were likely to be seen.
LOW INFLATION
"With inflation quite low and resource use slack, the committee believes that policy accommodation can be maintained for a considerable period," the Fed said, repeating language it initiated at its August meeting to assure financial markets it was willing to do whatever was necessary to spur growth.
The FOMC pointed to a definite improvement in the economic tenor in the six weeks since its last meeting on Oct. 28.
"The evidence accumulated over the intermeeting period confirms that output is expanding briskly, and the labor market appears to be improving modestly," the Fed said.
The Federal Reserve Bank had previously said the chance of falling inflation exceeded odds of a pickup but shifted its stance to say the two now were "almost equal" risks.
Stocks weakened, despite the fact that a continued diet of low rates is considered beneficial for equities, because investors had already bid prices up ahead of the Fed decision.
The Dow Jones Industrial Average lost 41.85 points to close at 9,923.42 while the high tech-laden NASDAQ composite index was off 40.53 to end at at 1,908.32.
The Dow Jones average briefly spiked through the 10,000 level early in the session, which prompted some selling for profits.
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