MercoPress. South Atlantic News Agency

US recession “slowing” but economy is expected to remain weak, says Fed

In spite of the impressive injections of liquidity Fed anticipates inflation will remain subdued for some time

The United States Federal Reserve kept interest rates unchanged on Wednesday and said that the recession in the US is “slowing” but “economic activity is likely to remain weak for a time”.

“The Federal Open Monetary Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period”, said the official release.

“Information received since the FOMC met in April suggests that the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months, household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales”.

FOMC added that the prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee “expects that inflation will remain subdued for some time”.

Further on FOMC said that it will continue with its current policy of “quantitative easing” providing “support to mortgage lending and housing markets and to improve overall conditions in private credit markets”.

For this purpose the Federal Reserve “will purchase a total of up to 1.25 trillion US dollars 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 USD of Treasury securities by autumn.

The Fed also anticipates 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.

Finally the Fed said it would continue to “evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets”.

The FOMC voted unanimously to maintain the base rate, as had widely been expected.

In reaction to the Fed’s report Dow industrials slumped for a fourth straight day on Wednesday and US government bonds fell.

The US dollar rose broadly, with the Euro falling after the European Central Bank lent banks nearly half a trillion euros in its first one-year tender. Traders also said the Swiss National Bank intervened in the currency market to weaken the Swiss franc against the US currency.