When I read that "emergency" measures would be on "indefinitely" I couldn't help but think "We've always been at war with Eurasia."
http://www.guardian.co.uk/business/2009/nov/04/federal-reserve-leave-interest-rates-unchanged
Fed keeps US interest rates at emergency near-zero levels• Extraordinary measures to remain for 'extended period'
• G20 to discuss withdrawal of taxpayer support
* Heather Stewart and Kathryn Hopkins
* guardian.co.uk, Wednesday 4 November 2009 20.35 GMT
The Federal Reserve tonight reaffirmed its pledge to keep interest rates at their unprecedented low for an "extended period" as the US economy clambers out of the deepest recession in a generation.
After its policy meeting in New York, the Fed's governors said there were signs that economic activity had continued to pick up over the past month, but they opted to keep borrowing costs unchanged at 0-0.25%, as they waited for clear evidence of recovery.
"Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth and tight credit," the Fed's open market committee said in a statement.
The US economy expanded at a healthy 3.5% annual rate in the third quarter of the year, helping to boost the markets' confidence about an upturn, but chairman Ben Bernanke and his colleagues said they still believed there was little risk of inflation taking hold.
"With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the committee expects that inflation will remain subdued for some time," they said, confounding some analysts' predictions that the Fed would start to signal an "exit strategy" from the extraordinary support measures of the past 18 months.
The Fed also announced it would trim by $25bn, to $175bn, the amount it will spend on buying so-called "agency debt" – loans from state-owned mortgage lenders Fannie Mae and Freddie Mac – as part of the emergency recession-busting policy Bernanke has referred to as "credit easing".
The Fed has already bought $300bn of treasury bills and last night reaffirmed its plan to spend $1.25bn on mortgage-backed securities by next March, in an effort to kick-start credit and enable firms and families to borrow again. But there are growing concerns that this scattergun approach may be creating bubbles in some markets.
Gold prices hit a new record above $1,091 yesterday, boosted by a decision by the Indian central bank on Tuesday to buy more than £4bn of bullion from the International Monetary Fund. Gold prices have soared as investors seek alternative "safe haven" assets to the waning dollar.
The Fed's cautious approach came as G20 finance ministers prepared to meet in St Andrew's, Scotland tomorrow for a two-day summit at which they will discuss how and when to withdraw the huge taxpayer support they have given their economies over the past two years.
Treasury sources said yesterday that any statement from the weekend meeting was likely to retain the promise made at the leaders' summit in Pittsburgh in September to keep emergency support in place for as long as is necessary. "We are not yet back to trend growth levels. I expect we will have the same language as in Pittsburgh, that the current support measures need to be kept in place until recovery is well secured."
Alistair Darling, the chancellor, hopes to move discussions on to drawing up an international "framework for growth", in which each country would play its part in building a stronger world economy, instead of dwelling on the UK's failure to escape recession.
Speaking in Johannesburg, the US deputy treasury secretary, Neal Wolin, said: "There will be a set of discussions about how we're going to sequence all this as governments think about moving from a period of stress and so forth to a period that's steadier and more regularised and as some of these extraordinary measures which the G20 countries took become less necessary."
He made it clear the White House believes it is too early to take the US economy off life-support. "There's still a need … – and this will be another focus – to continue to be pushing toward stimulus in the near term," he said.
