Fed Keeps Near-zero Rates, Sees Gradual Rebound

June 24, 2009
Predicts inflation will remain subdued'

The Federal Reserve on Wednesday held its base rate near zero, as it predicted a "gradual resumption of sustainable economic growth" without inflationary pressures.

Concluding a two-day meeting, the policymaking Federal Open Market Committee, as widely expected, left the base federal funds rate in a range of zero to 0.25 percent.

The FOMC said the economy remained weak but was showing signs of improvement. "Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing," the panel said.

"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."

Dismissing the notion that its stimulus effort would spark inflationary pressures, the panel said it expects "that inflation will remain subdued for some time."

On the economic outlook, the FOMC said that "conditions in financial markets have generally improved in recent months." It added that household spending "has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit."

"Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales," the FOMC stated.

The FOMC voted unanimously to maintain its base rate and said that "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

The Fed offered no indication it would ramp up or scale back its effort to pump more liquidity into the financial system, an effort that began with a pledge this year to buy up more than $1 trillion in U.S. government and agency securities in an effort to push down interest rates. "The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets," the statement said.

"The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted."

Copyright Agence France-Presse, 2009

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