US Fed still keeps key rates in zero zone

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Washington: The US central bank has retained near-zero rate regime to boost the country’s fragile recovery and said cheap credit would continue for an “extended period”.

After a two-day policy meeting, the Federal Reserve on Wednesday decided to retain the benchmark rates in the range of 0 to 0.25 per cent.

“(The Fed) continues to anticipate that economic conditions, including low rates of resource utilisation, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” it said in a statement.

The Federal Open Market Committee (FOMC), which decides on rates, struck a positive note, saying economic activity had continued to pick up in recent months and the housing sector is improving.

However, a key U.S. unemployment report due today could yield more clues about the ailing American consumer economy and demand for Asian exports.

The Fed’s decision is in contrast to advanced economies like Australia and Israel that have raised their benchmark rates, indicating that revival is happening.

After being in recession for more than a year, the US economy expanded 3.5 per cent in the third quarter, thanks to increased consumer and government spending.

“Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit,” the Fed said.

Even though economic activity is likely to remain weak for some more time, the central bank expects policy actions would stabilise financial markets and institutions.

“... fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilisation in a context of price stability,” it noted.

To bolster mortgage-backed securities and credit markets, the Fed would purchase a total of USD 1.25 trillion of mortgage-backed securities and about USD 175 billion of agency debt.