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Reporting from Washington -
The Federal Reserve said today it was holding short-term interest rates at near zero and would probably make no change for the foreseeable future, despite the turnaround in economic activity.
And the decision to leave monetary policy essentially unchanged came in the face of growing differences inside the Fed about when to start tightening up on credit to forestall the possibility of an inflationary surge.
Chairman Ben S. Bernanke and his peers at the policy-setting committee reiterated that they would maintain the benchmark overnight lending rate between zero and 0.25%, adding that the rate was likely to remain "exceptionally low" for "an extended period of time."
The statement said the Fed considered the danger of rising prices to be low because of the continued existence of what it called "substantial resource slack," namely high unemployment and unused factory capacity.
Given the still-anemic condition of the economy, most analysts had expected the Fed to maintain its low-interest approach, but some had expected the official language to be modified to say the policy would continue "for some time," instead of the stronger "for an extended period of time."
Among analysts, who parse the Fed's language the way Cold War Kremlinologists once examined the pronouncements of Moscow, that seeming tiny shift was seen as a way for the central bank to give a nod to long-standing concerns among bond investors and others who have worried about a return of inflation.
Wednesday's statement shed no new light on a possible exit strategy -- when and how the central bank would begin to unwind various emergency programs to ease the credit crunch and prop up the economy. Officials said they would continue to purchase about $1.4 trillion of mortgage-backed securities and agency debt, which have helped to lower long-term interest rates.
In line with their decision not to pull back on credit, Fed officials gave a somewhat subdued assessment of the economic recovery. They said only that "economic activity has continued to pick up," noting that "activity in the housing sector has increased in recent months" and businesses are making "progress in bringing inventory stocks into better alignment with sales."
Officials said that "economic activity is likely to remain weak for a time," noting that consumer spending seems to be expanding but remains constrained by persistent job losses and other factors.
Last week the government reported that the U.S. gross domestic product, the broadest measure of economic activity, expanded at an annual rate of 3.5% in the third quarter, breaking four straight quarters of contraction. The GDP growth, however, was largely driven by federal stimulus such as the "cash for clunkers" rebate program for car buyers, and many analysts remain concerned about the durability of the recovery.
With unemployment still high and the uncertainties in the economy, most analysts don't think the Fed will raise interest rates until the middle of next year, at the earliest. The Fed's next policy-setting meeting is scheduled for Dec. 15-16.
don.lee@latimes.com
And the decision to leave monetary policy essentially unchanged came in the face of growing differences inside the Fed about when to start tightening up on credit to forestall the possibility of an inflationary surge.
Chairman Ben S. Bernanke and his peers at the policy-setting committee reiterated that they would maintain the benchmark overnight lending rate between zero and 0.25%, adding that the rate was likely to remain "exceptionally low" for "an extended period of time."
The statement said the Fed considered the danger of rising prices to be low because of the continued existence of what it called "substantial resource slack," namely high unemployment and unused factory capacity.
Given the still-anemic condition of the economy, most analysts had expected the Fed to maintain its low-interest approach, but some had expected the official language to be modified to say the policy would continue "for some time," instead of the stronger "for an extended period of time."
Among analysts, who parse the Fed's language the way Cold War Kremlinologists once examined the pronouncements of Moscow, that seeming tiny shift was seen as a way for the central bank to give a nod to long-standing concerns among bond investors and others who have worried about a return of inflation.
Wednesday's statement shed no new light on a possible exit strategy -- when and how the central bank would begin to unwind various emergency programs to ease the credit crunch and prop up the economy. Officials said they would continue to purchase about $1.4 trillion of mortgage-backed securities and agency debt, which have helped to lower long-term interest rates.
In line with their decision not to pull back on credit, Fed officials gave a somewhat subdued assessment of the economic recovery. They said only that "economic activity has continued to pick up," noting that "activity in the housing sector has increased in recent months" and businesses are making "progress in bringing inventory stocks into better alignment with sales."
Officials said that "economic activity is likely to remain weak for a time," noting that consumer spending seems to be expanding but remains constrained by persistent job losses and other factors.
Last week the government reported that the U.S. gross domestic product, the broadest measure of economic activity, expanded at an annual rate of 3.5% in the third quarter, breaking four straight quarters of contraction. The GDP growth, however, was largely driven by federal stimulus such as the "cash for clunkers" rebate program for car buyers, and many analysts remain concerned about the durability of the recovery.
With unemployment still high and the uncertainties in the economy, most analysts don't think the Fed will raise interest rates until the middle of next year, at the earliest. The Fed's next policy-setting meeting is scheduled for Dec. 15-16.
don.lee@latimes.com
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