MercoPress. South Atlantic News Agency

Fed sees recession easing and reiterates expansion of money supply

The US Federal Reserve has kept interest rates on hold at its current range of between zero and 0.25% and has suggested the recession may be easing. It also said it would continue with its “quantitative” current approach of purchasing long-term government debt to expand money supply.

“Information received since the Federal Open Market Committee met in March indicates that the economy has continued to contract, though the pace of contraction appears to be somewhat slower” said on Wednesday the Federal Open Market Committee following a two day meeting.

“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”, adds the release..

“Nonetheless, 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”.

Earlier, official data showed GDP fell 6.1% in the first three months of 2009, led by a sharp fall in exports. But contraction in the last quarter of last year was 6.3%.

Given the limited margin with interest rates, the Fed emphasized it will continue to act through a program of buying government debt to boost lending and promoting recovery, a financial instrument described as quantitative easing..

“As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn”, said the release.

Finally the Fed reiterated it is continuing to facilitate the extension of credit to households and businesses supporting the functioning of financial markets through a range of liquidity programs.