Fed stays course, says economy 'modestly' better




The Federal Reserve said Wednesday the US economy is still contracting but at a "somewhat slower" pace as it maintained near-zero interest rates and its array of programs to boost easy credit.

Concluding a two-day meeting, the Federal Open Market Committee maintained its policy of low rates accompanied by a variety of programs to pump up credit and lift the economy out of recession, but noted that the outlook "has improved modestly."

The FOMC statement said that since its last meeting in March, "the economy has continued to contract, though the pace of contraction appears to be somewhat slower."

It added that Fed members "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 panel headed by Fed chairman Ben Bernanke repeated its position that it "will employ all available tools to promote economic recovery and to preserve price stability."

It voted unanimously to maintain the target range for the federal funds rate at zero to 0.25 percent and added that "that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

It said the central bank would carry out its vast program to purchase Treasury debt and other securities "in light of the evolving economic outlook and conditions in financial markets."

The Fed had previously announced plans to buy up to 1.25 trillion of agency mortgage-backed securities and up to 200 billion dollars of government agency debt by the end of the year.

The Fed announced a program last month to buy up to 300 billion dollars of Treasury securities in the coming months, as part of its plan to bring down interest rates it cannot directly control.

Bernanke, who calls the effort "credit easing" instead of quantitative easing, nonetheless acknowledges the effort to effectively print vast amounts of money to help lift the economy out of its worst crisis in decades.

The announcement came hours after the government said the US economy slid at a 6.1 percent pace in the first quarter as plunging business investment offset improved consumer spending.

The Commerce Department's first estimate of gross domestic product GDP disappointed forecasters expecting a 4.7 percent annual rate of decline, and marked only a marginal improvement over the 6.3 percent drop in the fourth quarter of 2008.

The decline marked a third consecutive quarter of contraction for the world's biggest economy, which had not occurred since 1974-1975. But some analysts cited hopeful signs in the bleak report.

The steep GDP drop was the result of falling exports, declines in business and household investment and a weak housing market, offset in part by surprisingly strong consumer spending.

In its statement, the Fed said that "household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit."

It noted that weak sales prospects and tight credit "have led businesses to cut back on inventories, fixed investment, and staffing."

"Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time," the FOMC said.





Rietschel

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