Fed Keeps Key Rates Steady As Contraction Continues

Federal Reserve policymakers concluded their two-day meeting yesterday, leaving the target range for the federal funds rate at zero to 0.25%.

The Federal Open Market Committee said that information received since it last met in March indicated that the economy has continued to contract, though the pace of contraction appears to have slowed.

“Household spending has shown signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Weak sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories, fixed investment, and staffing,” the FOMC said.

“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. 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.”

The FOMC added that in light of increasing economic slack here and abroad, it expected that inflation would remain subdued.

“The committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term,” it said.

Given these circumstances, the Fed said it will employ all available tools to promote economic recovery and to preserve price stability.

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