Wednesday, January 28, 2009

US interest rates kept near zero

US interest rates kept near zero
The US Federal Reserve has kept interest rates unchanged but has pledged to "employ all available tools" to revive the economy.

Last month, the central bank cut rates as far as they can go - to a range of zero to 0.25%.

The Fed said it was prepared to use more unconventional monetary policy, such as buying long-term government debt, to improve conditions.

It added that the cost of borrowing was expected to remain low for some time.

"The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth," it said in a statement.

The strategy of a central bank buying government bonds mirrors the so-called quantitative easing carried out by the Japanese government when it was fighting deflation in the late 1990s and early 2000s.

Deflation becomes more of a risk as interest rates approach zero.

It is a serious problem for an economy because people postpone making any large purchases as they believe prices are going to fall, which stifles economic activity even further.

The news on interest rates boosted US stocks, with the Dow Jones up around 2.5% in afternoon trade in New York.

Story from BBC NEWS:

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