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| Federal Reserve Chairman Ben Bernanke delivers a report on the country's economic and financial health before the House Financial Services Committee, on Capitol Hill in Washington, in this July 21, 2009 file photo. | ||
That was the mixed picture sketched Wednesday by the Fed, which pledged to hold rates at a record low to reduce unemployment and sustain the recovery. And the assessment was reinforced by government data on inflation, home building and U.S. trade.
Fed Chairman Ben Bernanke and his colleagues did sound a more optimistic note by pointing to the slowdown in job losses. But they made clear the recovery is far from strong: Consumer spending remains sluggish, the job market weak, wage growth slight and credit tight. Companies are still wary of hiring, they said.
In the meantime, the Fed isn't wavering from its commitment to keep its bank lending rate at zero to 0.25 percent, where it has stood since last December. It said again it will keep rates there for an "extended period."
In response, commercial banks' prime lending rate, used to peg rates on home equity loans, certain credit cards and other consumer loans, will remain about 3.25 percent. That's its lowest point in decades.
Super-low interest rates are good for borrowers who can get a loan and are willing to take on more debt. But those same low rates hurt savers. The rock-bottom rates are especially hard on people on fixed incomes who earn scant returns on savings accounts and certificates of deposit.
Michael Darda, chief economist at MKM Partners, predicted that rates would stay where they are for most of next year.
Low inflation is one sign of the economy's weakness. Companies are finding it hard to raise prices because consumers fearful for their jobs remain wary of spending much.
That was clear from a Labor Department report Wednesday on consumer prices. Prices did move higher last month. But that was mainly because of volatile energy costs.
After stripping out volatile energy and food prices, inflation disappeared last month. That gives the Fed leeway to hold its key interest rate at a record low to aid the recovery.
At the same time, home construction rebounded in November after a setback in October. And applications for new building permits — a gauge of future activity — rose more than economist had predicted. A housing recovery is vital to the overall economy.
Also, the government said its broadest measure of foreign trade posted a sharp increase in the July-September quarter, signaling higher demand for foreign goods. That, too, is seen as a sign of a slowly strengthening economy.
The current account is the broadest measure of trade because it includes not only trade in goods and services but also investment flows among countries.
For last month, the Consumer Price Index, the most closely watched inflation barometer, rose 0.4 percent. That was up from a 0.3 percent increase in October.
The government said energy prices rose 4.1 percent, reflecting more expensive fuel oil and gasoline. Energy prices, though, are already in retreat. Oil prices are down about 10 percent this month.
The uptick in inflation last month, however slight, ate into Americans' already-weak wages. Average weekly earnings, adjusted for inflation, dipped 0.7 percent from November 2008, according to a separate Labor Department report. It was the first such drop this year.
The Fed said it expects to wind down several emergency lending programs when they are set to expire next year. That seemed to strike a confident note that the Fed thinks it can gradually lift supports it provided at the height of the financial crisis.
The Fed said it has leeway to hold rates at super-low levels because it expects that inflation will remain "subdued for some time."
Fed policymakers repeated their belief that slack in the economy — meaning plants operating below capacity and the job market staying weak — will keep inflation down.
Some worry that the Fed's cheap-money policies will stoke inflation.
But Bernanke, who's been named Time magazine's "Person of the Year" for 2009, has sought to assure skeptical lawmakers and investors that when the time is right, he's prepared to withdraw the extraordinary stimulus money the Fed has injected into the financial system. Doing so would reduce the likelihood of igniting inflation or new asset bubbles.
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