Fed optimistic, retains low rates

The Federal Reserve on Wednesday voiced growing optimism on the US economy as job losses slow, but repeated a vow to keep interest rates unusually low for “an extended period.”

The Federal Reserve on Wednesday voiced growing optimism on the US economy as job losses slow, but repeated a vow to keep interest rates unusually low for “an extended period.”

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In a unanimous decision, the US central bank left benchmark overnight rates on hold in a zero to 0.25 per cent range, as widely expected.

Underscoring the economy’s recovery, the Fed in a post-meeting statement highlighted improvement in the battered housing sector and noted last month’s decline in the unemployment rate.

“Economic activity has continued to pick up,” the Fed said at the conclusion of a two-day meeting. “Deterioration in the labor market is abating.”

Underscoring improving conditions for banks, the Fed said it would stand by plans to shutter most of its emergency lending facilities on February 1, showing growing confidence that credit markets could stand on their own. Despite such steps, a Reuters poll taken after the policy decision found that most US primary dealers, banks that deal directly with the Fed, do not expect any interest hikes until the first quarter of 2011.

The US economy returned to growth in the third quarter, expanding at a 2.8 per cent annual rate, signaling the end of the most severe recession since the 1930s.