Bloomberg Fed Pledges to Keep Rates Low for ‘Extended Period’

Nov. 4 (Bloomberg) -- The Federal Reserve repeated it will keep interest rates near zero for “an extended period” and specified for the first time that policy will stay unchanged as long as inflation expectations are stable and unemployment fails to decline.

“Businesses are still cutting back on fixed investment and staffing, though at a slower pace,” the Federal Open Market Committee said in a statement today. “Household spending appears to be expanding, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth and tight credit,” the FOMC said after meeting in Washington.

Chairman Ben S. Bernanke is trying to determine when the recovery is strong enough to withdraw the $1 trillion the Fed injected to avert a depression. The dollar declined as the Fed’s statement, which followed a report last week showing the economy expanded last quarter for the first time in more than a year, signaled growth alone won’t be enough to warrant tighter policy.

Officials kept their benchmark overnight lending rate at between zero and 0.25 percent, where it has been since December. The conditions they cited to keep it there are “low rates of resource utilization, subdued inflation trends, and stable inflation expectations.”

“What they’re saying is the economy is improving, but it’s still entirely dependent on stimulus,” said Chris Low, chief economist at FTN Financial in New York, who doesn’t expect an interest-rate increase until next September. Fed officials are signaling that “The test for when rates have to go up, or stimulus has to be removed, ought to be inflation.”

Dollar Slides

The dollar slid as much as 1.2 percent, the biggest intraday decline since Sept. 8, before trading at $1.4876 per euro at 4:09 p.m. in New York, compared with $1.4724 yesterday. The Standard & Poor’s 500 Index was up 0.1 percent at 1,046.50 after rising as much as 1.5 percent. more...