U.S. News: Fed to Keep Rates Low Despite Pickup
The Federal Reserve affirmed its plan to keep interest rates "exceptionally low" for a long time despite signs of economic recovery. But the Fed began to lay rhetorical groundwork for an eventual shift in its stance, suggesting that when the unemployment rate falls or if expectations of inflation turn up, it could change course.</br></br>"Economic activity has continued to pick up," the Fed said in a statement following a two-day meeting. It noted that consumer spending has improved, housing activity has increased and businesses were retrenching at a slower pace.</br></br>Fed officials voted unanimously to maintain their target for the key federal-funds interest rate -- at which banks lend to each other overnight -- near zero and said they expect to keep it there for an "extended period," which suggested increases are at least several months off.</br></br>Central banks in smaller economies -- such as Australia, Israel and Norway -- have started raising interest rates. But the Fed made clear the U.S. economy isn't nearly strong enough to begin moving in that direction, even though the economy grew at a 3.5% rate in the third quarter and is expected to keep growing into 2010.</br></br>While consumers are spending, the Fed noted they were "constrained by ongoing job losses, sluggish income growth, lower housing wealth and tight credit." Meanwhile, "businesses are still cutting back on fixed investment and staffing, though at a slower pace."