Federal Reserve Bank Holds Rates Steady

The Federal Reserve Bank's Federal Open Market Committee ("FOMC") held its benchmark short-term interest rate ("Fed Fund Rate") at the historic lows again today and pledged to keep the interest rates low for an "extended period" of time to nurture the economic recovery that is now in progress and to help lower unemployment.

The Federal Reserve Bank's FOMC did not address signs of improvement in the U.S. housing market, which it had after its previous FOMC meeting. The Federal Reserve Bank said that it still expects to discontinue a $1.25 trillion program aimed at keeping mortgage interest rates low as scheduled on March 31, 2010.  But, the Fed did reiterate that it remains open to changing that timetable if necessary.

Reports on home sales this week pointed to a still-fragile housing market.

One Federal Reserve Board FOMC member dissented from the decision to retain the pledge to hold the Fed Funds Rate at record lows. Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, says the economy has improved sufficiently to drop the pledge, which has been in place for nearly a year.

Fed policymakers said economic activity has continued to "strengthen," the deterioration in the job market is easing and consumers are spending moderately. But they warned that high unemployment, lackluster income growth and tight credit could crimp that spending.  The Federal Reserve has kept its target range for its Fed Funds Rate at zero to 0.25 percent, where it has been since last December, 2009.

In response, commercial banks' prime lending rate, used to peg rates on home equity loans, certain credit cards and other consumer loans, will remain about 3.25 percent. That's its lowest point in decades.

Super-low interest rates are good for borrowers who can get a loan and are willing to take on more debt. But those same low rates hurt savers. They're especially hard on people living on fixed incomes who are earning measly returns on savings accounts and certificates of deposit.

With the economy on the mend, the Federal Reserve Bank this year can focus on how and when to pull back the stimulus money pumped out to fight the financial crisis.  Federal Reserve Chairman Ben Bernanke will lead that effort now that his prospects for confirmation for another four-year term have improved.