U.S. Fed keeps key interest rate unchanged

Thursday, 29 January 2009, 02:37 Hrs
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Washington: The U.S. Federal Reserve Wednesday decided to keep a key interest rate unchanged at 0-0.25 percent, and also vowed to use all tools to save the sagging economy.

The Fed continues to anticipate that "economic conditions are likely to warrant exceptionally low levels of federal funds rate for some time," the US central bank said in a statement.

It admitted that information received since the Fed's Open Market Committee met in December, suggests that the economy has weakened further.

Industrial production, housing sector and employment continued to decline steeply as consumers and businesses have cut back spending, it said.

"Furthermore, global demand appears to be slowing significantly," it noted. "Conditions in some financial markets have improved, nevertheless, credit conditions for households and firms remain extremely tight."

The Fed vowed to "employ all available tools" to promote sustainable economic growth and preserve price stability.

The focus of the Fed's policy is to support the functioning of financial markets and stimulate the economy through open market operations and other measures, the bank said.

It pledged to continue to purchase large quantities of agency debt and mortgage-backed securities to provide support to mortgage and housing markets, and it stands ready to expand the quantity of such purchases and duration of the purchase programme as conditions warrant.

It is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets, the statement added.

The Federal Reserve will be implementing the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses.

The central bank will continue to "monitor carefully the size and composition of the Federal Reserve's balance sheet" in light of evolving financial market developments.

As to the inflation, the Fed said it expects that inflation pressures will remain subdued in coming quarters due to the declines in the prices of energy and other commodities in recent months and the prospects for considerable economic slack.

Also Wednesday, the International Monetary Fund forecast the US economy was likely to contract 1.6 percent in 2009, sharply down from its estimate of a 0.7 percent growth issued just two months ago.

The conclusion was partly echoed by the Fed.

A gradual recovery in economic activity will begin later this year, but "the downside risks to that outlook are significant," according to the central bank.
Source: IANS
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