Fed Holds Rates Near Zero

Says the struggling U.S. economy is showing signs of stabilizing

The Federal Reserve announced Wednesday it would hold its base interest rate in a range of zero to 0.25%, and said the struggling U.S. economy is showing signs of stabilizing.

"Information received since the Federal Open Market Committee met in June suggests that economic activity is leveling out. Conditions in financial markets have improved further in recent weeks. Household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing but are making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability," according to an FOMC statement.

"The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the committee expects that inflation will remain subdued for some time," the statement read.

The central bank also said it would phase out a massive effort to pump liquidity into the financial system through the purchase of Treasury bonds and mortgage-backed securities. The program, which could involve some $1.75 trillion, will be completed by the end of October, the Fed said in a statement at the conclusion of a two-day monetary policy meeting.

Copyright Agence France-Presse, 2009

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