The Federal Reserve’s policy-making arm said on Wednesday that it had decided to keep short-term interest rates near zero for “an extended period,” citing challenges to economic growth, including the effect of new financial troubles abroad, Christine Hauser reports in The New York Times.
The rate decision by the Federal Open Market Committee, announced at the end of its two-day meeting, was in line with what analysts had expected, taking into account conditions like the pressures on consumer spending and an unemployment rate of 9.7 percent.
As they do every time the Fed committee meets, economists and investors carefully picked apart its statement, seeking clues about its intentions and its view of the economy.
The Fed changed its wording slightly on prospects for growth and acknowledged the effect of lower prices and tame inflation.
“It was a little bit more cautious and a little bit more somber in terms of its tone,” said Paul Ballew, a former Federal Reserve economist who is a senior vice president for Nationwide Insurance.
While cautioning against reading too much into one statement, Mr. Ballew said the message from the Fed appeared to be that the economic recovery had momentum but also faced restraints, like excess capacity and a soft labor market.
“They are trying to communicate a balanced point of view,” he said.
In recent months concerns have sharpened in equity and credit markets that Europe’s debt troubles could worsen, affecting the health of the global economy.
This was reflected in the Fed’s statement, which said: “Financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.”
As it had after its meeting in April, the committee voted to keep the benchmark federal funds rate at zero to 0.25 percent, where it has been since December 2008.
The committee said it continued to anticipate that economic conditions “are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”
But one member, Thomas M. Hoenig, voted against the policy action, as he had done before.
According to the Fed statement, Mr. Hoenig said he believed that the stated intention to keep rates low was no longer warranted and could actually limit the bank’s flexibility to raise rates modestly in the future.
The Fed did not alter its basic characterization of the pace of economic recovery, which it described as “likely to be moderate for a time.”
But it changed its language on growth, saying the economic recovery was “proceeding.” In April it said economic activity “has continued to strengthen.”
“It is definitely indicative that the Fed is more concerned about the pace of growth,” said Dan Greenhaus, the chief economic strategist for Miller Tabak & Company.
Inflation in recent months has been largely unchanged, and is well below the Fed’s unofficial annual target of about 2 percent.
While the Fed did not change its language on inflation, which it described as “likely to be subdued for some time,” it acknowledged declining prices for things like energy and other commodities.
“They definitely took note,” Mr. Greenhaus said.
Many economists expected that interest rates would stay low, and have been scaling back their forecasts for economic growth for the rest of the year.
In its statement on Wednesday, the Fed otherwise portrayed its assessment of the economy as largely the same as in its evaluation in April.
It said the labor market was “improving gradually” and noted that household spending remained constrained by high unemployment, modest income growth, lower housing wealth and tight credit.
Housing starts were described again as being at a “depressed level,” but with no mention, as in April, that they had edged up.
The Fed did not discuss what it would do to reduce the balance sheet it had accumulated as it acquired mortgage-backed securities.
To prop up the housing market, the Fed completed buying $1.25 trillion of the securities in March, and then abandoned the practice.
Andrew J. Neale, head of portfolio and risk management at Fogel Neale Partners, said he did not believe the Fed would resume purchases of the securities.
“It will look very weak on the Fed’s part if they discontinue the program and restart it again,” he said.
Mr. Neale said that while he did not believe the economy was in for a second drop into recession, it appeared that economic growth was much weaker than in the recovery phase after previous downturns.
“Consumers are still saving, not spending,” he said. “The push in the G.D.P. growth has been by businesses rebuilding inventories, and that has to slow down at some point.”
“The Fed is in a tough position,” Mr. Neale added. “They can’t lower rates any more.”
