Fed Leaves Interest Rates Unchanged, Gives Upbeat Economic Assessment

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The Federal Reserve once again left interest rates at essentially zero and repeated its promise to keep rates low for some time. At the same time, the Fed also gave a relatively upbeat assessment of the economy, saying that while weakness is likely to persist, conditions seem right for improvement.

The Federal Open Market Committee, the monetary policy-setting arm of the Fed, said it was leaving the target range for the federal funds rate at zero to a quarter percent. The Fed also repeated that it would keep rates low "for an extended period."

The other measures the Fed has put in place to stimulate the economy will continue as well, though these will be gradually removed over the next 6 months or so.

The central bank said it would buy a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt, a move meant to create liquidity so mortgage lending and the housing markets can stabilize and so overall conditions in private credit markets can improve.

However, the Fed noted that it would gradually slow its purchases in order to ease itself out of the market, with the purchases set to be completed by the end of the first quarter of 2010.

Policy-makers repeated that they would complete their purchases of Treasury securities by the end of next month.

The Fed said that there has been further improvement in financial market conditions and said activity in the battered housing sector has increased.

The central bank gave a mixed assessment of the consumer, noting stabilization in consumer spending but pointing out that several factors are holding back people's ability to spend. This includes ongoing job losses, sluggish income growth, lower home values and tight credit conditions.

On inflation, the Fed stated that a weak economy would help keep inflation under control "for some time."

There was little doubt going into the announcement that the Fed would leave rates alone at this meeting, given the central bank's promise to be accommodative for "an extended period." But signs of stabilization in the economy have raised questions about when the Fed will begin to unwind its efforts to stimulate growth.

Experts worry that if the economy begins to recover while rates remain low and the Fed's liquidity programs remain in effect, easy money will spark significant inflation.

In general, recent readings on core inflation have remained relatively tame, although there are some signs in commodity prices, especially in gold, that the markets are expecting inflation to ramp up.

The Federal Reserve once again left interest rates at essentially zero and repeated its promise to keep rates low for some time. At the same time, the Fed also gave a relatively upbeat assessment of the economy, saying that while weakness is likely to persist, conditions seem right for improvement. The Federal Open Market Committee, the monetary policy-setting arm of the Fed, said it was leaving the target range for the federal funds rate at zero to a quarter percent. (Market News Provided by RTTNews)