Fed holds rates steady, will 'slow' bond purchases

WASHINGTON -- USA-FED/ (UPDATE 1):UPDATE 1-Fed seen holding US rates steady, ending bond buys

The Federal Reserve today held interest rates steady and said it would "slow the pace" of its program of buying long-term government securities to pump cash into the economy.

Laying the groundwork for removing the massive amounts of money they have pumped into the economy to fight the recession, the Fed said it would gradually slow the pace of a $300 billion program to buy Treasury securities, so that it will shut down at the end of October, rather than in September, as originally scheduled.

The program is aimed at lowering rates on mortgages and other consumer debt, a move to spur Americans to spend more.

In its statement, the Fed said: "To promote a smooth transition in markets as these purchases of Treasury securities are completed, the Committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets."

The statement notes improvements in financial markets and says "economic activity is leveling out."

"Household spending has continued to show signs of stabilizing but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing but are making progress in bringing inventory stocks into better alignment with sales," the committee said.

Adding to glimmers of hope, goods imports into the United States rose in June for the first time in 11 months, the Commerce Department reported Wednesday morning.

Nevertheless, in announcing its decision to leave the key federal funds rate target at zero to one-quarter percent, the policymaking Federal Open Market Committee said it "continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."