U.S. Fed to hold rates low as economy slowly improves

Interest rates will be held in the range of 0-0.25 per cent for an extended period in anticipation of "low rates of resource utilization, subdued inflation trends, and stable inflation expectations", the United States Federal Reserve’s said

March 17, 2010 07:56 am | Updated November 17, 2021 05:49 am IST - Washington DC

A television indicates that the Fed will keep interest rates unchanged on the floor of the New York Stock Exchange in New York on Tuesday. Photo: AP

A television indicates that the Fed will keep interest rates unchanged on the floor of the New York Stock Exchange in New York on Tuesday. Photo: AP

Interest rates will be held in the range of 0-0.25 per cent for an extended period in anticipation of “low rates of resource utilization, subdued inflation trends, and stable inflation expectations”, the United States Federal Reserve’s said today.

Following the Fed’s announcement, equity markets closed at an 18-month high and US Treasury yields declined, according to reports.

The Fed’s Federal Open Market Committee, which last met in January, hinted at improving conditions in the U.S. economy, pointing out that business spending on equipment and software rose “significantly” and household spending expanded moderately. However the latter remained constrained by high unemployment, modest income growth, lower housing wealth, and tight credit, the FOMC cautioned.

The FOMC added a note of explanation on its efforts to bolster the mortgage finance market through credit securities purchases. “To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve has been purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt,” it said.

Commenting on the overall macroeconomic picture the FOMC said that economic activity continued to strengthen and that “the labor market is stabilizing”. However, it added that employers remain reluctant to add to payrolls. With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

Nine out of ten members of the FOMC voted for the FOMC to hold rates low. The one dissent vote came from Thomas M. Hoenig, who held that “continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the build-up of financial imbalances and increase risks to longer-run macroeconomic and financial stability.”

0 / 0
Sign in to unlock member-only benefits!
  • Access 10 free stories every month
  • Save stories to read later
  • Access to comment on every story
  • Sign-up/manage your newsletter subscriptions with a single click
  • Get notified by email for early access to discounts & offers on our products
Sign in

Comments

Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.

We have migrated to a new commenting platform. If you are already a registered user of The Hindu and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.