Print this Story
Staff and wire reports
With signs the economy is improving but still fragile, Federal Reserve policymakers held the Fed funds rate steady -- at zero to 0.25% -- on June 24, and maintained its pace of purchases of government debt at mortgage-backed securities.
The Federal Reserve Open Market Committee said at the end of its two-day meeting that indications are that the "pace of economic contraction is slowing," and financial markets have improved in recent months. Household spending is also stabilizing, the FOMC said, but remains hampered by continuing job losses, declines in household wealth, and tight credit. Businesses, meanwhile, are cutting back on spending and staffing, and are reducing inventory.
"Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability," the Fed statement said, adding that inflation is expected "to remain subdued for some time."
Driving Down Rates
In March, the Fed launched a bold $1.2 trillion effort to drive down interest rates to try to revive lending and get Americans to spend more freely again. It said it would spend up to $300 billion to buy long-term government bonds over six months and boost its purchases of mortgage securities. So far, the Fed has bought about $177.5 billion in Treasury bonds.
The Fed is on track to buy up to $1.25 trillion worth of securities issued by Fannie Mae and Freddie Mac by the end of this year or early next year. Nearly $456 billion worth of those securities have been purchased.
But slowing down the purchases carries risk, including that rates on mortgages and government debt could rise more than expected, which could hurt the economy's prospects for emerging from recession, economists said.
A recent runup in rates on mortgages and Treasury securities, if prolonged, could choke off prospects for an economic recovery. Some of those fears were eased last week, when rates on 30-year mortgages dipped to 5.38% after a string of weekly increases.
Paul Ashworth, senior U.S. economist at Capital Economics in Toronto, said the Fed dropped a statement warning about too-low inflation. "We take those changes to mean that Fed officials are less worried about the threat of deflation now," Ashworth said in an e-mailed statement.
