WASHINGTON — The Federal Reserve, in announcing that it would keep interest rates near zero and continue expanding the nation's money supply, quelled speculation that it would shift gears to gird against inflation.
The global economy continues to contract, the United States is still shedding jobs, and consumer spending continues to be tepid. Inflation? Not a worry just yet, the Fed concluded.
Ending two days of scheduled meetings Wednesday, the central bank couched its assessment of where things stand in characteristically bland but unambiguous terms: Though the recession is easing, it said, "economic activity is likely to remain weak for a time."
Household spending, the Fed noted in a statement summarizing its conclusions, "remains constrained by ongoing job losses, lower housing wealth and tight credit."
As expected, the Fed's Open Market Committee reiterated its pledge to keep the key federal funds rate -- the rate banks charge one another for overnight loans -- between zero and 0.25% for "an extended period."
That rate, aimed at lowering interest rates across the board, has been in place since December.
In addition, the Fed's statement indicated that it would stay the course in its plan to buy up to $1.25 trillion of mortgage-backed securities, up to $300 billion of U.S. Treasury bonds and up to $200 billion of other agency debt.
The Fed has purchased about half of the $1.75 trillion that it has earmarked.
"They've clearly indicated that they're not going to put the brakes on this because of the risks of inflation," said G.U. Krueger, a housing market expert who runs Housingecon .com, a research and consulting firm in Los Angeles.
Financial markets ended mixed after the Fed's statement, underscoring the crosscurrents running through an economy in transition.
A government report Wednesday showed that orders for durable factory goods rose 1.8% in May, with machinery orders helping to offset the large decline in motor vehicles, indicating that the manufacturing sector may ramp up production soon.
But a separate report showed that sales of new homes fell in May compared with April, as demand remained near record low levels.
Most economists expect the U.S. economy to resume growing in the third quarter of this year, even though the housing and job markets will worsen well into next year.
