The US Federal Reserved Wednesday decided to leave a Key interest rate at a record low in an effort to foster economy recovery world wide. Wrapping a two-day meeting, the Federal Open Market Committee (FOMC) said in a statement that it will maintain the target range for the federal funds rate at 0 to 0.25%, indicating that it will leave the benchmark interest rate at exceptional low levels “for an extended period” of time. The committee expressed concerns that while household spending seems to be stabilizing, it remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. The committee said that it expects inflation will remain subdued for some time because substantial resource slack is likely continue to dampen cost pressures and longer-term inflation expectations remain stable. The Fed also decided to slow down the pace of a program designed to aid housing purchases amid signs that the battered housing market is stabilizing. The Federal Reserve announced the program to buy mortgages and debts from Fannie Mae, Freddie Mac and Ginnie Mae last November, shortly after the financial crisis culminated with the collapses of the Lehman Brothers. The program, designed to prevent a complete breakdown of the housing market, was originally scheduled to end by the end of this year. Savvy Fed observers believe that the Fed decision to stretch out the goal of purchasing US$1.45T in mortgage-backed securities and debt issued by companies like Fannie Mae and Freddie Mac shows that the US central bank is confident the recovery will take hold. The Federal Reserve has so far bought about US$775B worth of mortgage-backed securities and debt from the major loan providers for home buyers. The stock markets responded to the Fed decision and statement in a very dramatic way. Stocks, which were little changed in early trading on Wednesday, first jumped by around 50 points in the immediate announcement of the Fed decision but turned negative in later trading.
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