The Federal Reserve on Wednesday voiced growing optimism on the US economy as job losses slow, but repeated a promise to keep interest rates unusually low for “an extended period.”
In a unanimous decision, the US central bank left benchmark overnight rates on hold in a zero to 0.25 percent range, as widely expected.
Underscoring the economy’s recovery, the Fed noted in a post-meeting statement improvement in the battered housing sector and last month’s decline in the unemployment rate.
“Economic activity has continued to pick up,” the Fed said at the conclusion of a two-day meeting. “Deterioration in the labor market is abating.”
Underscoring improving conditions for banks, the Fed said it would stand by plans to shutter most of its emergency lending facilities on Feb. 1, showing growing confidence that credit markets could stand on their own.
Despite such steps, a Reuters poll taken after the policy decision found that most US primary dealers, banks that deal directly with the Fed, do not expect any interest rate increases until the first quarter of 2011.
The US economy returned to growth in the third quarter, expanding at a 2.8 percent annual rate, signaling the end of the most severe recession since the 1930s.
“They recognize growth prospects are brighter,” said Anna Piretti, senior economist at BNP Paribas. “This is the first step in removing the policy stimulus, but it doesn’t mean they are about to raise rates.”
US stocks briefly moved higher after the decision as investors welcomed the Fed’s acknowledgment of a rebounding economy, but the gains proved fleeting in a nervous market. Along with bonds and the US dollar, equities ended the day little changed.
While a string of recent reports has shown the recovery gathering strength, the Fed made clear it was in no rush to tighten borrowing conditions either, given the lack of an immediate inflation threat in the face of high unemployment.
Last month, the jobless rate edged down to 10 percent, just off a 26-and-a-half year high, but Fed officials expect it to remain above 9 percent at least through the end of next year.
Inflation, meanwhile, seems largely contained.
The Labor Department said on Wednesday consumer prices rose 0.4 percent last month, pushing the 12-month gain into positive territory for the first time since February, but prices outside of food and energy were flat on the month.
“Economic conditions — including low rates of resource utilization, subdued inflation trends and stable inflation expectations — are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” the Fed said.
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