Interest rates unchanged amid 'weak' economy
— -- Citing a "weak" but improving economy, the Federal Reserve left interest rates unchanged Wednesday and took no further steps to pump cash into stagnant credit markets, moderately disappointing investors.
The central bank and its colleagues voted unanimously to keep a key interest rate near zero, adding that the rate will likely stay low for "an extended period." It reiterated plans to purchase up to $1.75 billion in government securities. But some economists had expected policymakers to expand the size or timing of the purchases, a strategy that tends to drive down interest rates and spur stock markets.
The Dow Jones industrial average closed down 23.05 at 8299.86 after rising 100 points or so in midday trading. Bond prices dipped and yields rose on expectations that inflation eventually could force the Fed to raise rates.
"Conditions in financial markets have generally improved in recent months," the Federal Open Market Committee said in a statement after its two-day meeting. "Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth and tight credit."
The Fed cuts interest rates to reduce borrowing costs and spark the economy, and raises rates to head off inflation. It noted it's still not worried about rising costs, saying "inflation will remain subdued for some time." It added the "pace of economic contraction is slowing."
After its April meeting, however, the policymakers voiced some concern about excessively low inflation or deflation that could further hinder economic growth. That view was not expressed in Wednesday's release.
"It suggests they might be somewhat more willing" to raise rates ultimately, though likely not within the next year, says UBS economist James O'Sullivan.
Conrad DeQuadros of RDQ Economics thought the Fed at least might extend the timing of its securities purchases, which are a less conventional way of driving down interest rates and helping reduce costs for mortgages and other loans. Earlier this year, the Fed said that by year's end it will purchase up to $1.75 trillion in mortgage-backed securities, Treasury notes and other debt.
Related Stories
ABC News Live