The US Federal Reserve on Wednesday expressed growing confidence that an economic recovery was building, even as it stuck to its commitment to keep borrowing costs near zero for “an extended period.”
As expected, the central bank closed out a two-day meeting with a decision to keep benchmark overnight interest rates in a range of zero to 0.25 percent. The vote was unanimous.
In a statement, the Fed said the US economy had “continued to pick up” since its last meeting in September, but it expressed concern the recovery was likely to be muted.
PHOTO: BLOOMBERG
“Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth and tight credit,” it said.
While still emphasizing risks, the Fed was a bit more upbeat than in September, when it had simply said spending was “stabilizing.”
The Fed cut interest rates to near zero last December and has pumped more than US$1 trillion into the economy to tame a severe financial crisis and the deepest recession since the 1930s.
The US central bank was more explicit than it had been previously on why it expects to be able to keep rates “exceptionally low” for a long time, citing the slack that has built up in the economy and the lack of an inflationary threat.
By citing “low rates of resource utilization, subdued inflation trends and stable inflation expectations,” analysts said the Fed was providing a road map to follow to determine when it may finally begin to tighten policy.
“If there is any surprise, it sounds like there is not even any hint that they are going to raise rates soon,” said Robert MacIntosh, chief economist at Eaton Vance Corp in Boston. “We’ve got a number of Fed meetings to go before we will get any kind of increase.”
Most analysts at top US banks have been expecting the Fed to keep interest rates on hold until the middle of next year or later. Before it raises rates, it is expected to begin to withdraw some of the cash it pumped into the economy to keep credit flowing.
Other central banks also are wrestling with how best to spur economic growth and when to withdraw extraordinary measures to support their economies.
The European Central Bank was expected to keep rates on hold at a record-low 1 percent yesterday, while there was a good chance the Bank of England would expand its large asset purchase program at a meeting the same day.
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