Amid Fledgling Recovery, Fed Stands Pat on Interest Rates
Though signs of economic growth continued to emerge since Fed governors met last month, the group said in a written statement at the conclusion of the two-day meeting Wednesday that businesses are still cutting back and remain reluctant to hire new employees.
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Further, the Fed said overall economic activity is likely to remain weak for some time and signaled that it's likely to keep the federal funds rate in the range of 0% to 0.25% as long as necessary. Slack demand for resources, low inflation and an expectation that prices will remain stable "warrant exceptionally low levels of the federal funds rate for an extended period," the Fed said.
Stocks lost ground following release of Fed's decision. The Dow Jones industrial average, which reached 10,510 earlier Wednesday, slipped to 10,460 at about 2:45 p.m. ET, some 30 minutes after the Fed's statement was released.
While the economy remains weak, the Fed said there were reasons for optimism including a housing sector that has shown signs of improvement in recent months. Further, it said consumer spending appears to be expanding, although constrained by a number of factors including a weak labor market and tight credit.
To bolster mortgage lending and aid the housing market, the Fed said it will buy more than $1 trillion worth of mortgage-backed securities and about $175 billion in debt. It expects to complete the transactions by March 31. The Fed also said it expects to wind down several emergency lending programs -- implemented during last year's financial crisis -- when they are due to expire next year.
The Fed concluded its meeting on the day its chairman, Ben Bernanke, was named Time magazine's "Person of the Year." In granting Bernanke the honor, Time said the former professor "knows the economy would be much, much worse if the Fed had not taken such extreme measures to stop the panic."
The recognition comes just weeks ahead of a vote by the Senate to approve a second term for the 56-year-old Bernanke as Fed chairman. First appointed by then-President George W. Bush, Bernanke's first term expires Jan. 31.