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Economic contraction is slowing: US Fed

June 25, 2009 18:09 IST

Hinting at signs of recovery, the US Federal Reserve has said the pace of economic contraction is slowing down and financial market conditions have improved in recent months.

". . .the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months," the Fed said in a statement on Wednesday.

The central bank also left the benchmark rates unchanged in the range of 0 to 0.25 per cent.

The Federal Open Market Committee which decides on the key rates has retained the same near zero and said economic conditions warrant 'exceptionally low levels' of federal fundsfor a longer period.

Noting that the Fed would employ all available tools to promote economic recovery and to ensure price stability, the statement said, "the committee will maintain the target range for the federal funds rate at 0 to 1/4 per cent (0.25 per cent) and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period".

However, the apex bank has warned that economic activity is likely to remain weak for some more time.

The world's largest economy is reeling under one of the worst recession in nearly 80 years, shrank over five per cent in the first quarter.

The Fed noted that household spending has shown further signs of stabilising but remains constrained by ongoing job losses, lower housing wealth and tight credit.

". . . policy actions to stabilise financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability," the statement said.

On Wednesday, the Organisation for Economic Cooperation and Development projected the American economy to contract 2.8 per cent in 2009 and has forecast a growth of 0.9 per cent in 2010.

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