TOPICS > Economy

Fed Keeps Key Rate at Record Low

BY Admin  June 24, 2009 at 3:00 PM EST

Fridges; Flickr Creative Commons via squeakymarmot

The Fed opted once again to maintain a key bank lending rate at a record low of between zero and 0.25 percent, and renewed its pledge to keep it there for “an extended period” to help with ongoing economic recovery efforts.

Despite recent rises in energy and other commodity prices, the Fed said inflation will remain “subdued for some time.” This new language sought to ease Wall Street’s concerns the Fed’s actions to revive the economy will spur inflation down the road.

The Fed also decided to stay the course on existing programs intended to drive down rates on mortgages and other consumer debt. The central bank also kept its options open to making changes if economic conditions warrant.

Fed policymakers noted that the “pace of economic contraction is slowing” and that conditions in financial markets have “generally improved in recent months,” according to the AP.

Meanwhile, an unexpected increase in durable goods orders in May sparked some hope that the economy is healing, but the hard-hit housing market remains unsettled, new economic reports showed.

Orders for long-lasting U.S. manufactured goods rose by a stronger-than-expected 1.8 percent last month, the Commerce Department said. That far exceeded the 0.6 percent decline that economists had expected, matching a rise in April, with both months posting the best performance since December 2007, when the recession began.

The back-to-back monthly gains in orders for items expected to last at least three years were further evidence that a dismal stretch for U.S. manufacturers could be nearing an end. But analysts say any sustained rebound is months away.

“The numbers point to a stabilization, but certainly not a robust recovery,” said Keith Hembre, chief economist at First American Funds in Minneapolis.

Despite the positive signs in durable goods orders, U.S. home sales fell slightly in May, in another sign that the housing market’s recovery is likely to be gradual and prolonged.

The Commerce Department said sales dropped 0.6 percent in May to a seasonally adjusted annual rate of 342,000, from a downwardly revised April rate of 344,000. Sales were down nearly 33 percent from May last year.

The median sales price of $221,600, was down 3.4 percent from a year earlier but still up 4.2 percent from April.

“The overall level of sales is still very soft. Buyers may still be reluctant to step up with prices still edging downward. We’re stabilizing, but we still have some hurdles to overcome before we see a solid recovery in housing,” said Gary Thayer, senior economist at Wells Fargo Advisors, St. Louis, according to Reuters.