LONDON, Mar. 17 -- The Federal Reserve tonight reaffirmed its promise to keep interest rates low for an "extended period" while it waits for clear evidence of an upturn in the US economy.
At its regular policy meeting, the Fed's Open Markets Committee (FOMC) opted to keep rates unchanged at their unprecedented low of 0-0.25%, where they have remained since December 2008, at the height of the financial crisis.
In a statement , the FOMC said it "continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period." Share prices on Wall Street rose after the decision, with investors relieved that there was no signal of rising rates on the way.
The FOMC's members said the economy had "continued to strengthen" since their last meeting in January but they warned that consumer spending was being held back by high unemployment and weak income growth, the number of new homes being built was "flat at a depressed level" and "the pace of economic recovery is likely to be moderate for a time".
Fed chairman Ben Bernanke and his colleagues have set out an "exit strategy" from some of their emergency support measures for the American financial system, including raising the "discount rate" at which they lend to banks.
But Bernanke has insisted that the move will have no impact on the rates paid by ordinary borrowers, and the Fed has so far been reluctant to shift its main target rate, without being more firmly convinced that the economy is set on a sustainable path to recovery.
"In light of improved functioning of financial markets, the Federal Reserve has been closing the special liquidity facilities that it created to support markets during the crisis," the statement said.
The US emerged from recession last year, but some analysts are concerned that growth was artificially boosted by temporary handouts, including mortgage subsidies and a car scrappage scheme, and is set to slow later in the year.
However, some policymakers are beginning to fret about the risks of unleashing inflation by keeping rates too low, for too long. One member of the FOMC, Thomas M Hoenig of Kansas City, voted against the decision, warning that promising to keep rates low for an extended period "was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability." The majority on the committee believe "substantial resource slack" in the economy, after the deepest recession since the war, is likely to continue bearing down on inflation, leaving it "subdued".
In London, Charlie Bean, deputy governor of the Bank of England, struck a cautious note about the outlook for the economy in a speech to alumni of Cambridge University.
"Although a recovery of sorts may have commenced, there are still considerable doubts about its strength and durability and about the accompanying path of inflation. The road ahead is likely to be bumpy and there is still the risk of further adverse shocks," he said.
However, he did single out two "reasons to be cheerful" – saying the depreciation in sterling, and the £200bn-worth of quantitative easing already in place, should help to support the economy in the coming months.
The Bank hopes the sell-off in the pound will help to "rebalance" the economy, away from consumer spending and towards international trade.
Bean admitted that so far, there has been little sign of an upturn in exports, but he expected "to see the contribution from net exports gradually building as the global recovery proceeds".
He added that the "substantial stimulus still working through the economy" should also help to support demand over the coming months.
Bean said the success of the UK economy in emerging from recession would depend on how these positive factors play out against the ongoing impact of the battered banking sector, and the need for households and the government to get their finances back in order.