December 16, 2009 in Business, Nation/World

Fed holds rates at record low to fuel recovery

Jeannine Aversa Associated Press
 

WASHINGTON — The Federal Reserve has decided to hold interest rates at a record low and pledged to keep them there for an “extended period” to keep the recovery going and drive down double-digit unemployment.

But in a more upbeat assessment, the Fed says the economy has “continued to pick up” and that “deterioration in the labor market is abating,” a nod to the recent slowdown in the pace of layoffs.

Despite some improvements, Fed Chairman Ben Bernanke and his colleagues said there’s still reason for caution. Spending by households, while growing at a moderate pace, remains “constrained” by the weak job market, slight wage growth and tight credit, Fed policymakers said.

Against this 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. And it repeated its pledge, first made in March, to keep rates at “exceptionally low levels” for an “extended period.”

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.

Noting improvement in financial markets, the Fed also said it expects to wind down several emergency lending programs — set up during the height of the crisis — when they are set to expire next year.

The central bank also didn’t make any major changes to a program, set to expire in March, to help further drive down mortgage rates.

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