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US Fed maintains key interest rates

12-15-2010 13:43 BJT

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The US Federal Reserve on Tuesday kept the key interest rate near zero as widely expected. It also says it will maintain the pace of its 600-billion US dollar Treasury bond-buying program, because a slowly improving economy is still too weak to bring down high unemployment.

The Federal Reserve's last meeting of the year was as expected. Not convinced they've done enough to ignite the economy, policymakers kept key interest rates near zero and stuck to their 600 billion dollar bond buying program over the next six months.

Having run out of its usual tools to prop up the economy, the Fed has turned to purchasing U.S. Treasuries - known as quantitative easing or its latest program known as QE2.

Lately there have been signs of health in the economy: consumer spending and retail sales are up, jobless claims are edging lower. And critics say the program is no longer needed and could spark inflation.

But the Fed is not changing its policy stating. "The economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment."

Economist David Malpass from Encima Global says the statement suggests the Fed will start to back off QE2.

David Malpass, President of Encima Global said "The Fed is grudgingly conceding that the economy is not tanking the way they thought it was when they set up QE 2. So it's just one little step for the Fed to say you know we've done so well we're going to wind it down."

Meanwhile the tax cut deal circulating on Capitol Hill may take some pressure off the Central Bank, says Ken Goldstein, Economist at the Conference Board.

Ken Goldstein, Economist of The Conference Board said "Part of the reason why the Fed has been so proactive is precisely because the fiscal side has been so weak. So if this package goes through it allows the Fed, in a sense, to step back a little bit. They're not the only player out there."

Four new voting members will join the Federal Reserve Board next year. So beyond the economy these new players will also influence the direction of QE2 and the Fed in 2011.

Editor:Xiong Qu |Source: CNTV.CN

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