Fed policy unchanged despite global shocks

Federal Reserve officials kept US monetary policy on an even keel, despite the shocks being inflicted upon financial markets as they met yesterday.

In a statement at the end of its long-scheduled interest rate-setting meeting, the central bank's Federal Open Market Committee (FOMC) said that it would continue with its policy of printing money to buy US debt, but still expected the programme to end as planned by the end of June.

The Federal Reserve is trying to revive employment in the world's largest economy, where the jobless rate still stands at 8.9 per cent as a result of the credit crisis and recession. It gave no indication that the unfolding events in Japan might alter its view of the US economic recovery, which it said is on a "firmer footing".

The Federal Reserve is printing $600bn of new money to buy US Treasuries, in an attempt to hold down market interest rates for home buyers and businesses by quantitative easing. Official interest rates have been at zero for more than two years.

Analysts said the prospect of an extension of quantitative easing beyond June had diminished, since the FOMC indicated yesterday that it was seeing more inflation coming into the economy. In fact, the amount of space given over in the statement to inflation issues was the one marked change from the last announcement in January.

"Commodity prices have risen significantly since the summer, and concerns about global supplies of crude oil have contributed to a sharp run-up in oil prices in recent weeks," the FOMC statement said.

"The recent increases in the prices of energy and other commodities are currently putting upward pressure on inflation. The committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations."