The US Federal Reserve said on Wednesday that the outlook for the US economy had improved a bit in recent weeks but that low interest rates would be needed for some time to ensure it recovers from its deep recession.
Wrapping up a two-day policy meeting, the US central bank said it had decided to hold benchmark overnight interest rates in the range of zero to 0.25 percent reached in December even as officials took stock of some recent hopeful economic signs.
“Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time,” the Fed said in a statement.
“The economy has continued to contract, though the pace of contraction appears to be somewhat slower,” it said.
After their last meeting on March 17 and March 18, Fed officials had offered no hint the recession was abating and they announced plans to pump an additional US$1.15 trillion into the economy.
On Wednesday, no new actions were announced, although the central bank repeated its pledge to use all available tools to promote recovery and reiterated a vow to keep rates low for an extended period.
Underscoring the economy’s perilous state, a Commerce Department report showed on Wednesday that US GDP shrank by a larger-than-expected 6.1 percent annual rate in the first quarter, following a 6.3 percent decline in the fourth quarter of last year.
The recession has cost the economy 5.1 million jobs, driving the unemployment rate to a 25-year high of 8.5 percent in March.
Still, some data have supported US Fed Chairman Ben Bernanke’s suggestion in March that that some “green shoots” could be seen emerging from the economic wreckage — even if only showing that the pace of contraction is slowing.
For example, first-time claims for unemployment aid have been running below the 26-and-a-half-year high touched in late March.
Similarly, while sales of previously owned homes fell in March, inventories of homes available for sale also fell, and some analysts saw the decimated housing sector, which is at the heart of the US economic breakdown, as stabilizing.
Even the report on first-quarter GDP offered some hopeful signs. Consumer spending turned up and business inventories fell sharply, which could pave the way for future production.
At their last meeting, policy-makers reacted to a sense that the economy was deteriorating quickly with a massive expansion of their credit-easing efforts.
The Fed announced it would buy US$300 billion in long-term US government debt and increase purchases of debt and securities issued by government-supported mortgage agencies by US$850 billion in a bid to lower mortgage and other interest rates.
Policy-makers said on Wednesday they would adjust purchases in response to the changing economic outlook and developments in financial markets.
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