Low US interest rate likely to remain

The US Federal Reserve signalled today that it will keep using unconventional tools to cushion the fall-out, including keeping a key interest rate at a record low for quite "some time".

Specifically, the Fed said it is "prepared" to buy longer-term Treasury securities if the circumstances warrant such action. At its December meeting, the Fed said it was merely evaluating that option. Such a move could help drive down mortgage rates and provide help to the stricken housing market, economists said.

The Fed also agreed - with one dissent - to keep the targeted range for the federal funds rate between zero and 0.25%.

The funds rate is the interest banks charge each other on overnight loans. Economists predict the Fed will leave rates at that range through the rest of this year.

Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, was the sole dissenter. He wanted the Fed to move forward on buying Treasury securities.

"The economy has weakened further," the Fed said. To provide support, it said it would keep rates at rock bottom levels for "some time".

Having taken the unprecedented step of slashing its key rate to record lows at its previous meeting in December, the central bank pledged anew to look to other unconventional ways to revive the economy.

Fed chairman Ben Bernanke and his colleagues are battling a three-headed economic monster: crises in housing, credit and financial markets that - taken together - have not been seen since the 1930s.

Despite the Fed's aggressive rate-cutting campaign, a string of bold Fed programs and a $700bn (€532.7bn) financial bailout program run by the Treasury Department, credit and financial markets are still stressed and far from normal.

Yet, the Fed said there had been some thawing of frozen credit conditions.

"Conditions in some financial markets have improved, in part reflecting government efforts to provide liquidity and strengthen financial institutions; nevertheless, credit conditions for households and firms remain extremely tight," the Fed said.

The Fed also said it stands ready to expand another program aimed at providing relief to the crippled mortgage market.

The central bank is buying up to $500bn (€380.5bn) in mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. It also has agreed to buy up to $100bn (€76.1bn) of Fannie and Freddie debt.

Mortgage rates have fallen in the wake of the program's announcement late last year. The Fed said it could buy more of these securities or extend the length of the program.

The central bank also said it will be launching a program aimed at bolstering the availability of consumer loans.

Under the program, which is expected to start in February, up to $200bn (€152.2bn) will be made available to spur auto, student and credit card loans as well as loans to small businesses. To do that, the Fed will buy securities backed by those different types of consumer debt. The Fed also hopes that action will lower rates on those loans.

The Fed said it will assess whether the program should be expanded in size or scope. Fed officials previously have mentioned the possibility of expanding the program to provide financing for other types of securities, such as those backed by commercial mortgages.

The central bank repeated its pledge to "employ all available tools" to turn the economy around. Since its last meeting in December, the Fed said the economy had lost even more traction.

"Industrial production, housing starts and employment have continued to decline steeply as consumers and businesses have cut back spending," the Fed said. "Furthermore, global demands appears to be slowing significantly."

Looking ahead, the Fed anticipates "a gradual recovery in economic activity will begin later this year," but cautioned that "the downside risks to that outlook are significant".