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Fed Reiterates Rates Will Stay Low For "Extended Period"


As expected, the Federal Reserve's Federal Open Market Committee announced Wednesday that it voted to keep interest rates at near-zero levels.

The FOMC, the Fed's monetary policy-setting arm, said it would maintain the target range for the federal funds rate at zero to 0.25 percent. The rate target has remained unchanged since being lowered to the current level in December 2008.

In its accompanying statement, the FOMC said that it continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends and stable inflation expectations, will warrant low rates for an "extended period."

"The Committee will continue to monitor the economic outlook and financial developments and will employ its policy tools as necessary to promote economic recovery and price stability," the statement said.

Discussing the economy, the FOMC said that the economic recovery is "proceeding" and said it is seeing a gradual improvement in the labor market.

The committee added that household spending was improving but would continue to be constrained by "high unemployment, modest income growth, lower housing wealth, and tight credit."

It was also noted that, though business spending on equipment and software has risen, investment in non-residential structures remains weak and employers are still reluctant to add to their payrolls. Housing starts also remain at a depressed level.

The FOMC also noted that financial conditions have become less supportive of economic growth on balance because of "developments abroad," a nod to the sovereign debt crisis in Europe.

However, the committee stated that it still anticipates a "gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be moderate for a time."

Commenting on inflation, the FOMC said that resource slack and stable long-term expectations will keep inflation subdued for "some time."

The only dissenter in the committee's vote for its policy action was Kansas City Fed President Thomas Hoenig, who voted against the policy action for the fourth straight meeting.

The Kansas City Fed chief again argued that "continuing to express the expectation of exceptionally low levels of the federal funds rate . . . could lead to a build-up of future imbalances and increase risks to longer-run macroeconomic and financial stability, while limiting the Committee's flexibility to begin raising rates modestly."

by RTTNews Staff Writer

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