Fed holds rate down, vows it'll keep it low

11/5/2009

WASHINGTON - The Federal Reserve pledged yesterday to keep a key interest rate at a record low for an "extended period," signaling that the weak economy remains dependent on government help to grow.

The Fed said economic activity has "continued to pick up" and that the housing market has strengthened - a key part of a sustained recovery.

But Fed Chairman Ben Bernanke and his colleagues warned that rising joblessness and tight credit could restrain the rebound.

"Economic activity is likely to remain weak for a time," they said.

Against that backdrop, the Fed kept the target range for its bank lending rate at 0 to 0.25 percent. And it made no major changes to a program to help drive down mortgage rates.

Commercial banks' prime lending rate, to which rates on home equity loans, certain credit cards, and other consumer loans are pegged, will remain about 3.25 percent, the lowest in decades.

Still, some credit card rates have risen over the past several months. In part, that reflected lenders increasing rates in response to escalating defaults on credit card loans.

Lenders also pushed through increases before a new law clamping down on sudden increases of credit-card rates takes effect early next year.

Fed policymakers "believe they need to keep rates low to ensure that the recovery doesn't falter," said Joel Naroff of Naroff Economic Advisors.

The Fed has now entered a new phase: Managing the recovery rather than fighting the country's worst recession and financial crisis since the Great Depression.