Fed Holds Steady on Rates


Policymakers declare that "economic activity has picked up" but remain wary of pulling the plug too soon on monetary programs designed to help credit markets

With a declaration that "economic activity has picked up," the U.S. Federal Reserve policymakers made no major policy shifts at the end of a two-day meeting on Sept. 23, holding a key interest rate steady at record low levels.

The Federal Open Market Committee—wary of ending its program of quantitative easing too soon—did say it would gradually phase out a program to support mortgage lending and housing markets, shuttering it the end of the first quarter of 2010 instead of the end of this year. Under the program, the Fed is buying $1.45 trillion in mortgage-backed securities and debt issued by Fannie Mae (FNM) and Freddie Mac (FRE).

"Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn," the FOMC statement said. "Conditions in financial markets have improved further, and activity in the housing sector has increased. Household spending seems to be stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing, although at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales."

The Fed policymakers also restated their projection that inflation will remain in check "for some time."

The FOMC kept the target for the Federal Funds rate at zero to 0.25 percent, as expected. It also said it would complete its purchases of $300 billion in Treasury securities by the end of next month.

Mintz is news editor for BusinessWeek.com in New York.

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