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US Fed cautious on recovery

business Updated: Jan 27, 2011 22:06 IST

Reuters
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The US Federal Reserve showed on Wednesday it was in no rush to cut short its rescue of the US economy, saying high unemployment still justified its $600 billion bond-buying plan even though the economy has shown some signs of improvement.

In a statement, the Fed acknowledged for the first time a rise in commodity prices that has fueled global inflation, but signaled it would not throw the US central bank off course.

The Fed noted that underlying US inflation has been 'trending downward,' a contrast in tone with other central banks around the world worried about price growth.

"The economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labor market conditions," the Fed said after a two-day policy meeting.

Policymakers unanimously backed continuation of the Fed's bond purchases, the first time there was no dissent since December 2009.

Analysts said the Fed, which detailed the headwinds the economy faces, may have been hesitant to sound too upbeat for fear financial markets would see any optimism as a sign that a tightening in monetary policy was drawing nearer.

The interest rate futures showed traders paring bets that the central bank would start raising overnight interest rates this year. The US dollar slipped and prices of US government debt fell, while stocks held gains and closed marginally higher.

"The statement doesn't acknowledge the uptick in economic data that we've seen over recent weeks to the extent that we had expected that it would," said Omer Esiner, chief market analyst at Commonwealth foreign exchange in Washington.