US to continue soft money policy for 'extended period'

The US Federal Reserve opted on Wednesday to hold interest rates steady at historic lows near zero, as expected, following its two-day policy meeting.

In its closely watched statement, the bankers said economic activity is likely to remain weak for some time. As a result, "the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability."

The central bank signalled that a return to economic growth alone won't warrant higher interest rates, saying an increase will instead depend on when the labour market and inflation pick up.

The Fed's rate-setting Open Market Committee restated its pledge to keep rates ''exceptionally low'' for an ''extended period.'' The panel added for the first time that its commitment depends on ''low rates of resource utilisation, subdued inflation trends and stable inflation expectations.''

The comments prompted traders to reduce bets for an increase in borrowing costs in the first half of 2010, given that policy makers are focused on reducing unemployment that's forecast to rise above 10 per cent.

The bankers, acting the week after a report showed that the US economy expanded in the third quarter for the first time in more than a year, left their target for the overnight interbank lending rate unchanged at a range of zero to 0.25 per cent. The vote of 10 officials was unanimous.