The US Federal Reserve held its key interest rate at historic lows on Wednesday and said the economy was continuing its modest recovery despite financial headwinds from abroad.
The Federal Open Market Committee (FOMC) said it was maintaining its federal funds rate target between zero and 0.25 percent, where it has been pegged since December 2008 to help the economy recover from its worst recession in decades.
The central bank’s rate decision was widely expected after economic reports since the last FOMC meeting two months ago showed the government-fueled recovery was still struggling.
“Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually,” the policy-setting FOMC said in a statement at the conclusion of a two-day meeting.
It said economic conditions were likely to warrant keeping “exceptionally low” rates “for an extended period,” repeating the language used in previous statements.
“The pace of economic recovery is likely to be moderate for a time,” the panel headed by Fed Chairman Ben Bernanke said.
But the Fed statement suggested that Europe’s fiscal problems were taking a toll.
“Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad,” the committee said, likely referring to the eurozone sovereign crisis.
The FOMC said that household spending, which usually accounts for two-thirds of the US’ economic activity, “is increasing but remains constrained by high unemployment, modest income growth, lower housing wealth and tight credit.”
Nine of the 10 FOMC members voted to maintain the target range on the federal funds rate, the interest rate banks charge each other overnight.
The lone dissenter was Kansas City Fed President Thomas Hoenig, dissenting for the fourth time since the Jan. 27 FOMC meeting.
The statement said Hoenig objected to the “extended period” language because it could lead to “a build-up of future imbalances and increase risks to longer-run macroeconomic and financial stability, while limiting the committee’s flexibility to begin raising rates modestly.”
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