Fed Holds Rates Steady, Says Rates Will Remain Low

(RTTNews) - The Federal Reserve once again left interest rates at essentially zero percent on Wednesday, despite what it described as a "pick up" in economic activity.

The Federal Open Market Committee, the policy-setting arm of the Fed, said it was leaving its target for the federal funds rate at a range from zero to a quarter percent.

The central bank also repeated its assessment that "exceptionally" low rates will continue for an "extended period." The vote for the rate decision was unanimous.

Going into the announcement, the Fed was expected to leave rates alone, though there was some expectation that the central bank would start to pave the way for an eventual rate hike down the road.

In the policy statement released along with the rate decision, the FOMC said it "continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.""

On the economy, the Fed stated that activity has "continued to pick up" since the last central bank policy meeting in September.

The Fed gave an improved assessment of the housing industry, noting that there has been increased activity in recent months. Policymakers saw an expansion in household spending, though issues like tight credit conditions and a weak job market have held spending back.

Conditions in the financial markets have largely been unchanged lately, the Fed noted.

The Fed predicted that inflation would remain under control.

"With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time," the FOMC statement read.

There have been concerns that the extremely easy monetary policy the Fed has put in place to fight the recession will lead to a spike in inflation once the economy begins to rebound.

While employment statistics continue to show weakness, other measures have shown improvement elsewhere in the economy, prompting calls for the Fed to begin to tighten policy sometime soon.

Also, the substantial decline in the dollar has led some experts to push for a change in the Fed's accommodative stance. The dollar reached a 14-month low last month before rebounding recently.

Earlier on Wednesday, payroll processor ADP said that companies cut 203,000 jobs in October. While this was an improvement from September's revised drop of 227,000 jobs, it came in slightly worse that the loss of 198,000 jobs that economists had predicted.

On Friday, the government's closely watched employment report is due to be released. Economists expect the data to show that payrolls declined by 175,000, while the unemployment rate is predicted to edge up to a new 26-year high of 9.9 percent.

Earlier this week, a closely watched manufacturing survey indicated surprisingly strong growth last month. The Institute for Supply Management said that its index of national manufacturing activity rose to 55.7 from 52.6 in September. Economists had expected a reading of 53.0 with any reading above 50 indicating expansion.

The figure, which represented the highest reading since April 2006, is among the recent evidence of a burgeoning rebound. It further encouraged hope stirred last week by a report showing the economy grew at a better-than-expected 3.5 percent pace in the third quarter.

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