Federal Reserve holds line on interest rates
Gold soars on announcement
Last Updated: Wednesday, November 4, 2009 | 4:57 PM ET
CBC News
The U.S. Federal Reserve Wednesday kept its benchmark interest rate at a record low.
In a unanimous decision that was widely expected, the U.S. central bank kept the target range for its bank lending rate at zero to 0.25 per cent.
That in turn will keep commercial banks' prime lending rates, on which home equity loans, credit cards and other loans are based, at about 3.25 per cent, the lowest in decades, in an attempt to encourage consumers to borrow and spend.
The commentary accompanying the decision signalled the rate will remain unchanged for "an extended period" and that the U.S. central bank is not worried about inflation.
The commentary said economic activity has continued to pick up, conditions in financial markets have been "roughly unchanged," housing activity is up, household spending appears to be expanding — but constrained by ongoing job losses and sluggish income growth, lower housing wealth and tight credit. As well, businesses are still cutting back on staff, although at a slower rate.
The U.S. Federal Reserve held interest rates at record lows Wednesday. (CBC) The bank also said it planned to inject more than $1.25 trillion into the economy during the first quarter of 2010, though that timetable could change depending on whether the economy picks up or slows.
A report on Oct. 29 showed the American economy resumed growth after a year of contraction, but many economists expect the U.S. unemployment rate will rise further, to more than 10 per cent.
Richard Kelly, senior economist with the TD Bank, suggested in a commentary that the Federal Reserve won't raise rates until 2011. Kelly said historically the U.S. central bank has tended to raise interest rates a year or more after the U.S. economy resumes growing.
He also forecast that other G7 countries would raise their rates by one percentage point beginning in 2010.
Only Australia, Norway and Israel have increased interest rates on the prospect of an improving economy. The U.S., Japan, and most European countries remain cautious about the fragility of the recovery.
The U.S. dollar slipped against a basket of six currencies Wednesday and gold closed farther into record territory, up $2.40 on the New York Mercantile Exchange at $1,087.30 an ounce.
Traders were betting central banks in Asia's emerging economies will increasingly buy the metal to replace the U.S. dollar for use as a reserve currency to defend their currencies. India announced Nov. 3 it had purchased 200 tonnes of gold from the International Monetary Fund.
