The US Federal Reserve on Wednesday upgraded its assessment of the US economy, saying growth had returned after a deep recession, while reiterating its promise to hold interest rates very low for a long time.
The Fed also said it would slow its purchases of mortgage debt to extend that program’s life until the end of March, in a move toward withdrawing the central bank’s extraordinary support for the economy and markets during the contraction.
The US central bank, as widely expected, held its benchmark overnight lending rates at close to zero percent.
PHOTO: AFP
“Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn,” the Fed said in a statement after its two-day policy meeting.
It added that “conditions in financial markets have improved further and activity in the housing sector has increased.”
The Fed said it would gradually slow the pace of its purchases of mortgage-related debt in order to promote a smooth transition in markets as the Fed has been the biggest buyer.
However, it made clear it would purchase the full amount of US$1.25 trillion in agency mortgage-backed securities. In its statement last month, the Fed had said it would buy “up to” that amount, but dropped those two words on Wednesday.
Some policymakers worry the bloated balance sheet risks triggering inflation if the Fed waits too long before removing its stimulus measures and raising interest rates.
However, the US central bank on Wednesday played down concerns about price pressures in an economy where the jobless rate is at a 26-year high and factory capacity is greatly underutilized.
Policymakers said inflation would remain subdued for some time with the substantial slack in the economy dampening cost pressures and with long-term inflation expectations stable.
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