Fed Pledges to Keep Rates Neat Zero for Extended Period

Nov. 4 (Bloomberg TV) -- The Federal Reserve repeated it will keep
interest rates near zero for “an extended period” and specified for
the first time that policy will stay unchanged as long as inflation
expectations are stable and unemployment fails to decline.

“Businesses are still cutting back on fixed investment and staffing,
though at a slower pace,” the Federal Open Market Committee said in a
statement today. “Household spending appears to be expanding, but
remains constrained by ongoing job losses, sluggish income growth,
lower housing wealth and tight credit,” the FOMC said after meeting in
Washington.

Chairman Ben S. Bernanke is trying to determine when the recovery is
strong enough to withdraw the $1 trillion the Fed injected to avert a
depression. The dollar declined as the Fed’s statement, which followed
a report last week showing the economy expanded last quarter for the
first time in more than a year, signaled growth alone won’t be enough
to warrant tighter policy.

Officials kept their benchmark overnight lending rate at between zero
and 0.25 percent, where it has been since December. The conditions
they cited to keep it there are “low rates of resource utilization,
subdued inflation trends, and stable inflation expectations.”

“What they’re saying is the economy is improving, but it’s still
entirely dependent on stimulus,” said Chris Low, chief economist at
FTN Financial in New York, who doesn’t expect an interest-rate
increase until next September. Fed officials are signaling that “The
test for when rates have to go up, or stimulus has to be removed,
ought to be inflation.”

US Dollar Slides