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U.S. Fed says economy leveling out, holds key interest rate near zero

Business Materials 13 August 2009 06:28 (UTC +04:00)

The U.S. Federal Reserve said on Wednesday that the U.S. economic activity is "leveling out," and decided to keep a key interest rate unchanged at a record low of between zero and 0.25 percent to prop up the economy, Xnhua reported.
   Information received recently suggested that "economic activity is leveling out," the Fed said. But it also noted that "economic activity is likely to remain weak for a time."
   In recent weeks, conditions in financial markets have improved further, said the central bank in a statement following its two- day policy-making meeting in Washington.
   Meanwhile, "household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit," it said, adding that "businesses are still cutting back on fixed investment and staffing but are making progress in bringing inventory stocks into better alignment with sales."
   The Fed 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," said the U.S. central bank.
   Although the economy is stabilizing, the Fed believes that the economy will keep a lid on inflation.
   "The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures," and the Fed "expects that inflation will remain subdued for some time," the Fed said.
   Against this backdrop, the Fed decided to hold the key interest rate, or federal funds rate, which commercial banks charge each other for overnight loans, unchanged.
   The decision means that commercial banks' prime lending rate, used to peg rates on home equity loans, certain credit cards and other consumer loans, will stay around 3.25 percent, the lowest rate in decades.
   Moreover, the Fed said that the interest rate is likely to remain at the current low level for "an extended period."
   The Fed also decided to stay the course on existing programs intended "to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets."

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