- The Washington Times - Wednesday, December 16, 2009

The Federal Reserve provided a more upbeat assessment of the economy Wednesday, noting that steep job losses appear to be on the wane and consumers are starting to spend again.

In a statement after a two-day meeting of its rate-setting committee, the Fed said it would maintain interest rates at “exceptionally low” levels near zero “for an extended period,” however, to ensure the economy keeps recovering from its deepest recession since World War II.

“Economic activity continues to pick up, and the deterioration in the labor market is abating,” the Fed said. “Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth and tight credit.”

In an announcement closely watched by financial markets, the Fed said it would continue to remove the extraordinary stimulus it provided to credit and money markets in the past two years as the economy recovers. The Fed ended its purchases of Treasury securities this fall and remains on track to stop purchasing much of the nation’s mortgage-backed securities by the end of March.

In addition, the Fed announced plans to terminate programs it established during the financial crisis a year ago to provide emergency loans to Wall Street brokers, and rebuild the shattered commercial paper market.

The termination of the emergency programs is aimed at assuring investors who are increasingly worried about a return of inflation pressures once the economy recovers, fueled by the Fed’s easy-money policies.

The Fed remained confident that inflation will stay at bay, however, saying it expects inflation will be subdued as long as the economy remains slack, with businesses operating at only a fraction of their capacity to produce and unemployment at 26-year highs over 10 percent.

Stocks rose modestly after the Fed issued its statement.

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