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Federal Reserve holds interest rates at record low

Traders work on the floor of the New York Stock Exchange minutes after the Fed announcement on interest rates Wednesday.

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Traders work on the floor of the New York Stock Exchange minutes after the Fed announcement on interest rates Wednesday.

WASHINGTON — The Federal Reserve pledged Wednesday to hold interest rates at a record low to drive down double-digit unemployment and sustain the economic recovery.

The Fed noted that the economy is growing, however slowly. And turning more upbeat, it pointed to a slowing pace of layoffs.

Still, Fed Chairman Ben Bernanke and his colleagues gave no signal that they're considering raising rates any time soon. They noted that consumer spending remains sluggish, the job market weak, wage growth slight and credit tight. Companies are still wary of hiring, they said.

Against that backdrop, the Fed kept its target range for its bank lending rate at 0 to 0.25 percent, where it has stood since last December. And it repeated its pledge, first made in March, to keep rates at "exceptionally low levels" for an "extended period."

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.

Michael Darda, chief economist at MKM Partners, predicted that rates would stay where they are for most of next year.

"We believe the Fed is essentially out of the picture until late 2010 or early 2011," Darda said. The Fed's "optimism was constrained by a long list of caveats," he added.

The Fed said it has leeway to hold rates at super-low levels because it expects that inflation will remain "subdued for some time." Fed policymakers repeated their belief that slack in the economy — meaning plants operating below capacity and the weak employment market — will keep inflation under wraps.

A government report out Wednesday showed that inflation is in check despite a burst in energy prices. Energy prices, however, are already in retreat.

Some encouraging signs for the economy have emerged lately. The economy finally returned to growth in the third quarter after four straight losing quarters. And all signs suggest it picked up speed this quarter.

The nation's unemployment rate dipped to 10 percent in November from 10.2 percent in October. And layoffs have slowed. Employers cut just 11,000 jobs last month, the best showing since the recession started two years ago.

Still, the Fed predicts unemployment will remain high because companies won't ramp up hiring until they feel confident the recovery will last.

Bernanke takes honors for what didn't happen

Federal Reserve Chairman Ben Bernanke was named Person of the Year by Time magazine Wednesday, crediting him with creative leadership that helped set the U.S. economy on a path to recovery even as he and other policymakers remain concerned about the high U.S. unemployment rate of 10 percent.

The selection puts the mild-mannered Bernanke, 56, a former professor, in the company of President Barack Obama, Pope John Paul II and Russian President Vladimir Putin, among other prominent world figures the magazine has picked in past years. "Ben is the person that kept us from going over the edge of the precipice and into the abyss," said former Fed Gov. Lyle Gramley, now a senior economic adviser at Soleil Securities. Bernanke "knows the economy would be much, much worse if the Fed had not taken such extreme measures to stop the panic," Time said in its cover story.

— Reuters

Federal Reserve holds interest rates at record low 12/16/09 [Last modified: Wednesday, December 16, 2009 11:09pm]
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