The US Federal Reserve gave a lukewarm economic assessment this evening despite recent signs the recovery was strengthening, saying high unemployment still justified its $600 billion bond-buying programme.
In a statement following its policy-setting meeting, the Fed also said measures of underlying inflation were 'somewhat low' although it acknowledged rising commodity prices that have fueled global inflation worries.
The Fed left its benchmark interest rate unchanged near zero, as was widely expected, and reiterated that rates would likely stay ultra-low for an extended period. None of the Fed officials dissented.
'The economic recovery is continuing, though at a rate that has been insufficient to bring about a significant improvement in labour market conditions,' the Fed said.
That statement was slightly more upbeat than its December assessment, when it said the recovery had been insufficient to bring down unemployment at all. Since that December meeting, the jobless rate has come down four-tenths of a percentage point to 9.4%.
The US Federal Reserve cut rates to near zero in December 2008 and bought $1.7 trillion in longer-term securities to provide an additional boost to the economy and battle deflation risks.
After the recovery appeared to falter in mid-2010, the central bank launched a new programme to buy $600 billion in US government debt to drive borrowing costs down further in the hope of lowering an unemployment rate stuck near 10%.
At its last meeting on December 14, the Fed disappointed markets somewhat with a statement that gave scant notice to signs the recovery was accelerating or the likely boost from an unexpected payroll tax break.
However, minutes of the meeting released three weeks later clarified that while Fed officials were beginning to anticipate a more robust expansion in 2011, most believed the Fed's aggressive easing was necessary to dent high unemployment.
Fed officials brought fresh economic forecasts to the table this week, but they will not be made public until February 16. The US economy is expected to have expanded by a reasonably robust 3.5% annual rate in the fourth quarter after growing at a 2.6% pace in the July-September period.
Similar vigour early in the new year may make the case for an ultra-accommodative monetary policy harder to sustain, even if unemployment remains relatively high. Unemployment slipped to 9.4% from 9.8% in December, even though job growth was only modest.
Low levels of inflation outside of food and energy costs had spurred worry at the Fed about a vicious cycle of falling prices and declining spending and investment, but the brighter economic signs have left Fed officials breathing easier.
