Fed keeps stimulus intact

WASHINGTON - THE Federal Reserve is keeping its economic stimulus effort largely intact, in a cautious posture, as the US economy shows signs of emerging from recession, analysts said.The central bank acknowledged Wednesday the economy is growing but maintained its near-zero interest rate and trillion-plus dollar effort to support the fragile recovery.

The policymaking Federal Open Market Committee headed by chairman Ben Bernanke voted unanimously to maintain the federal funds rate of zero to 0.25 per cent in place since last December to help jolt the economy out of its worst recession in decades.

The statement 'reaffirms the Fed is a long way from executing an exit strategy' from its multi-pronged stimulus, said Sal Guatieri, economist at BMO Capital Markets.

'If anything, it continues to want to prime the monetary pump by extending the mortgage purchase program a few more months.' Mr Guatieri said the central bank 'is being extra cautious, it fears slipping back into recession more than rampant inflation, and if it is to err it will be on the side of excessive monetary stimulus.'

Despite the upbeat phrase on growth, economists noted that the Fed highlighted concerns about the sustainability of the recovery with consumers still skittish and unemployment rising.

'The Fed seems to be believe that growth will be modest,' said Joel Naroff of Naroff Economic Advisors.

'The worries are about not just consumers but also businesses... In short, the economy is getting better but it is still not in good shape. That means the Fed is in no hurry to raise rates.'

The FOMC statement said it expects that sluggish conditions will 'warrant exceptionally low levels of the federal funds rate for an extended period.'

The statement noted that 'economic activity has picked up following its severe downturn' amid improvements in financial markets and the housing sector. -- AFP


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