WASHINGTON (dpa-AFX) - The Federal Reserve on Wednesday maintained its pledge to keep interest rates near zero for an extended period, while predicting better days ahead for the struggling U.S. economy.
Policy makers acknowledged that the sputtering labor market has been weaker than expected, but expect the pace of recovery to pick up over coming quarters.
The Fed gave no indication that it plans to extend or expand a controversial $600 billion quantitative easing program that expires this month.
'The statement issued today after the end of the two-day FOMC meeting offers no hint that the recent signs of a renewed economic slowdown might tempt the Fed to launch another round of large-scale asset purchases,' said Paul Ashworth at Capital Economics.
Despite the Fed's bloated balance sheet and ultra-low interest rates, the economy grew at an anemic 1.8 percent annual rate in the first quarter.
While analysts say the second quarter is not looking much better, the Fed insists the recovery is proceeding at 'a moderate pace, though somewhat more slowly than the Committee had expected.'
The Fed blamed the slower pace of the recovery on 'temporary' factors such as rising consumer prices and supply chain problems resulting from the Japanese tsunami.
In a slight shift of tone on inflation, policy makers noted that higher energy prices have been pinching consumers.
Also, the Fed omitted language expressing its ongoing concerns with 'too low' inflation, observed Rob Carnell of ING Bank NV.
Still, low rates of resource utilization and a subdued outlook for inflation will likely warrant exceptionally low interest rates for an extended period, according to the Fed.
Carnell expects no change in the Fed's benchmark interest rate until the second quarter of 2012.
The fed funds rate has been near zero since December 2008, as policy makers aimed to give the economy a boost following the worst recession in generations.
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