The Federal Reserve has decided to hold interest rates at a record low and pledged to keep them there for an "extended period" to nurture the economic recovery and lower unemployment.
The Fed made no reference to signs of improvement in the housing market, which it had after its previous meeting. The Fed said it still expects to end a $1.25 trillion program aimed at driving down mortgage rates as scheduled on March 31. But it reiterated that it remains open to changing that timetable if necessary.
Reports on home sales this week pointed to a still-fragile housing market.
One Fed member dissented from the decision to retain the pledge to hold rates at record lows. Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, says the economy has improved sufficiently to drop the pledge, which has been in place for nearly a year.
Fed policymakers said economic activity has continued to "strengthen," the deterioration in the job market is easing and consumers are spending moderately. But they warned that high unemployment, lackluster income growth and tight credit could crimp that spending.
Against that backdrop, the Fed kept its target range for its bank lending rate at zero to 0.25 percent, where it's stood since last December.
In response, commercial banks' prime lending rate, used to peg rates on home equity loans, certain credit cards and other consumer loans, will remain about 3.25 percent. That's its lowest point in decades.
Super-low interest rates are good for borrowers who can get a loan and are willing to take on more debt. But those same low rates hurt savers. They're especially hard on people living on fixed incomes who are earning measly returns on savings accounts and certificates of deposit.
With the economy on the mend, the Fed this year can focus on how and when to pull back the stimulus money pumped out to fight the financial crisis. Fed Chairman Ben Bernanke will lead that effort now that his prospects for another four-year term have improved. The Senate is slated to vote on his confirmation on Thursday.
With credit clogs easing, the Fed said it plans to wind down by March 8 a program — dubbed the Term Auction Facility — that provides banks with low costs loans.
It also repeated its intentions of dismantling a handful of other emergency lending programs set up during the financial crisis on Feb. 1, when they are set to expire.
Most of them haven't been used in months by banks or other firms as credit conditions have improved. Those programs include Fed efforts to backstop the "commercial paper" market. This involves short-term financing used to pay salaries and supplies. Another program slated to end bolstered the money market mutual fund industry.
Fed programs to provide emergency loans to investment firms and another program for financial institutions to swap risky securities for super-safe Treasury securities also will end Feb. 1. And the Fed will be winding down a "swap" program with other central banks to provide them with U.S. dollars, which had been in high demand during the crisis.
The winding down of these programs shouldn't have much economic impact because most have fallen out of use.
But investors and consumers are paying more attention to a big economic revival program: the Fed's purchase of mortgage securities from Fannie Mae and Freddie Mac, as a way to keep mortgage rates down.
The Fed is on track to buy $1.25 trillion in those securities by the time the program is scheduled to end at the end of March. But the Fed hasn't ruled out continuing to buy mortgage securities after then to support the economy. Some fear that the end of the program will lead to higher mortgage rates, hobbling home sales and further damaging the still-weak housing market.
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