WASHINGTON: The Federal Reserve on Wednesday voiced guarded optimism the battered US job market was improving, but it repeated a vow to keep interest rates extraordinarily low for “an extended period.”
In a unanimous decision, the US central bank left benchmark overnight rates on hold in a zero to 0.25 percent range, as financial markets had expected, and underscored the economy’s improvement by saying it would shut down most of its emergency lending facilities as scheduled on Feb. 1.
Outlining its thinking, the Fed highlighted signs showing the economy’s recovery from its deepest recession since the 1930s was gaining strength in a statement released after a two-day meeting.
“Economic activity has continued to pick up ... the deterioration in the labor market is abating,” it said. Stocks briefly added to gains after the decision as investors welcomed both the Fed’s nod to a rebounding economy as well as its renewed low rates pledge. Treasury bond prices turned lower, responding in part to equities.
The Fed slashed benchmark interest rates close to zero a year ago and has undertaken a host of emergency measures to pump more than $1 trillion into the economy to combat the worst financial crisis in generations.
With the economy expanding again, investors are wondering when and how quickly the Fed will begin to wind things down.
That day of reckoning, dreaded by many in financial markets appeared a small step closer given the central bank’s acknowledgment that the outlook was improving.
Still, the Fed made clear it was in no rush to raise rates due to the weakness of the labor market and lack of an immediate inflation threat.
“Economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” the central bank said.
“It’s confirmation the Fed won’t raise rates until the second half of next year,” said Melvin Harris, market strategist at Easy Forex in New York.
A string of recent reports has indicated the economy’s recovery from its deepest recession since the 1930s may prove stronger than many analysts had expected a few weeks ago.
Industrial production, which fell off a cliff when credit markets seized in late 2008, has started to crawl its way out of the hole, consumer spending has shown surprising resilience and the pace of job losses has slowed sharply.
Still, with the US unemployment rate at 10 percent, just off a 26-1/2 year high, Fed Chairman Ben Bernanke has come under fire for failing to spot the financial crisis ahead of time and focusing rescue efforts too narrowly on the banks.
President Barack Obama has confidence in Bernanke’s leadership at the Federal Reserve, the White House said on Wednesday.