A man walks in front of the U.S. Federal
Reserve building in Washington, June 24, 2009. The U.S. Federal Reserve
said on Wednesday that the U.S. economic activity is "leveling out," and
decided to keep a key interest rate unchanged at a record low of between
zero and 0.25 percent to prop up the economy. (Xinhua/Reuters file
WASHINGTON, Aug. 12 (Xinhua) -- The U.S. Federal
Reserve said on Wednesday that the U.S. economic activity is "leveling out," and
decided to keep a key interest rate unchanged at a record low of between zero
and 0.25 percent to prop up the economy.
Information received recently suggested that
"economic activity is leveling out," the Fed said. But it also noted that
"economic activity is likely to remain weak for a time."
recent weeks, conditions in financial markets have improved further, said the
central bank in a statement following its two-day policy-making meeting in
Meanwhile, "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," it said, adding that
"businesses are still cutting back on fixed investment and staffing but are
making progress in bringing inventory stocks into better alignment with sales."
Although the economy is stabilizing, the Fed believes
that the economy will keep a lid on inflation.
"The prices of energy and other commodities have
risen of late. However, substantial resource slack is likely to dampen cost
pressures," and the Fed "expects that inflation will remain subdued for some
time," the Fed said.
Against this backdrop, the Fed decided to hold the
key interest rate, or federal funds rate, which commercial banks charge each
other for overnight loans, unchanged.
The decision means that commercial banks' prime
lending rate, used to peg rates on home equity loans, certain credit cards and
other consumer loans, will stay around 3.25 percent, the lowest rate in decades.
Moreover, the Fed said that the interest rate is
likely to remain at the current low level for "an extended period."
The Fed also decided to stay the course on existing
programs intended "to provide support to mortgage lending and housing markets
and to improve overall conditions in private credit markets."
As announced in previous meetings, the Fed will
purchase a total of up to 1.25 trillion U.S. dollars of agency mortgage-backed
securities and up to 200 billion dollars of agency debt by the end of the year.
In addition, the Fed will buy up to 300 billion
dollars of Treasury securities by autumn, as part of its plan to bring down
interest rates it cannot directly control, according to a statement.
The central bank also said it would gradually slow
the pace of its program to buy 300 billion worth of Treasury securities so that
it will shut down at the end of October, versus September. Sofar, it has bought
about 253 billion dollars in Treasury bonds.
Doing so would help the ailing economy because many
kinds of debt -- from mortgages to corporate bonds -- are linked to Treasury
rates. Fed purchases could boost Treasury prices and drive down their rates.
That would ripple through and lower rates on other kinds of debt.
The Fed's decision to leave the interest rate
unchanged was in line with economists' expectations.
Most economists believe that the Fed will keep the
target range for its bank lending rate between zero and 0.25 percent through the
rest of this year and probably into next year to help spur the economy.
Fed Chairman Ben Bernanke has predicted that the
recession will end later this year. On Wednesday, the Fed said it 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."
The U.S. economy fell at a more subdued 1.0 percent
pace in the second quarter, a strong signal that the worst recession since the
Great Depression in 1930s has eased. The second-quarter fall, the fourth
straight quarterly decline, was much better than the 1.5 percent annualized
contraction that experts had expected.
The U.S. GDP tumbled at a staggering 6.4 percent pace
in the first quarter, the most in past three decades, a revision from an earlier
estimate of a 5.5 percent rate of decline.
The pace of job losses in the United States also
narrowed in July to 247,000 and the jobless rate fell unexpectedly to 9.4
percent. Since the recession began in December 2007, the U.S economy has lost a
net total of 6.7 million jobs.
The recent data of the job market signed that "the
worst may be behind us," said President Barack Obama. "We have pulled the
financial system back from the brink."
However, Obama also warned that there were still many
"We have a steep mountain to climb and we started in
a very deep valley," said the president.
"We have a lot further to go. As far as I'm
concerned, we will not have a true recovery as long as we're losing jobs, and we
won't rest until every American that is looking for work can find a job."
On Wednesday, the Fed indicated that it keeps the
door wide open to making changes if economic conditions warrant.
The Fed "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," said the U.S. central bank in the
"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," it added.