Fed Holds Key Interest Rate Near Zero

ECONOMY -- March 16, 2010 at 3:26 PM EDT

Fed Holds Key Interest Rate Near Zero

The Federal Reserve repeated its pledge on Tuesday to hold its key interest rate near zero "for an extended period."

In a statement, the central bank said, "Information received since the Federal Open Market Committee met in January suggests that economic activity has continued to strengthen and that the labor market is stabilizing."

The decision to keep the federal funds rate at a record low level came as no surprise. However, Fed watchers were looking to see whether the central bank would move to strip the phrase "for an extended period" from its rate announcement. Removing the phrase would have been "the first sign that the Fed thinks the economy is generating its own momentum and doesn't need the stimulus of low interest rates," according to Marketplace's John Dimsdale.

The Fed also reiterated it would be completing its program to purchase $1.25 trillion in mortgage backed securities by the end of this month.

"There is some concern about what will happen when the Fed stops buying agency MBS," according to Calculated Risk, however, "The important thing to remember is that there will be buyers; it is just a matter of price."

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