The U.S. Federal Reserve (Fed) on Wednesday upgraded its assessment of the U.S. economy, saying activity had increased after a severe recession, and the central bank renewed its pledge to keep interest rates exceptionally low for an extended period to support a fragile recovery. With the economy improving, the Fed said it would slow the pace of a program to lower mortgage rates and support the housing market. Specifically, it will slow purchases of mortgage debt to extend that program's life until the end of March, in a step toward a measured withdrawal of its extraordinary support for the economy during the recession. As expected, the central bank held a key interest rate steady at a historic low near zero percent. It pledged to keep rates there “for an extended period,” which economists say means through the rest of this year and perhaps into part of 2010. Holding the key interest rate steady means commercial banks' prime lending rate will stay at about 3.25 percent, the lowest in decades, with the goal of encouraging people and businesses to increase spending and fuel economic growth. “Economic activity has picked up following its severe downturn,” the Fed said in its closely-watched assessment. “Conditions in financial markets have improved further and activity in the housing sector has increased.” Despite the current improvement in economic activity, the Fed expects that inflation will remain “subdued for some time” due to substantial slack in the economy dampening cost pressures, and with stable long-term inflation expectations.
