- The Washington Times - Wednesday, September 23, 2009

The Federal Reserve on Wednesday said the economy has improved significantly and likely is growing again, led by gains in the long-stalled housing market.

But the Fed said the recovery is likely to be weak, held back by consumers who remain depressed by losses of jobs and income and businesses that continue to trim staff and investment. For that reason, the Fed said it would keep its target rate for bank lending near zero “for an extended period” to nurture the recovery.

“Economic activity has picked up following its severe downturn. Conditions in financial markets have improved further, and activity in the housing sector has increased … but economic activity is likely to remain weak for a time,” the Fed’s rate-setting committee said in a statement after a two-day meeting.

With the housing market showing signs of revival, the Fed said it would slow down purchases of mortgage securities under a $1.45 trillion program it began early this year in an effort to stimulate housing sales through lower interest rates. The Fed said it would complete the mortgage purchases by the end of next March, rather than the end of this year, as previously planned. The Fed also affirmed its previously announced intent to top purchasing Treasury securities by the end of October.

The Fed showed little concern about a flare-up of inflation that has worried some investors in view of central bank’s lenient money policies.

“Inflation will remain subdued for some time,” the Fed committee said, because of substantial slack in the economy, including high unemployment and low utilization rates at factories. These will “continue to dampen cost pressures,” it said.

The Fed’s moves largely were expected in financial markets. Stocks rallied modestly, with the Dow Jones Industrial Average gaining 75 points in midafternoon trading.

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