US Fed keeps rates low amid signs recovery is slowing

A drop in durable goods orders suggests that growth will have slowed in the second quarter

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The Independent Online

The Federal Reserve last night reaffirmed its commitment to the ultra-loose monetary policy that has kept the US economy out of a double-dip recession.

The American central bank said again that it would keep official interest rates at rock-bottom levels late into 2014, even as it saw the fruits of its efforts boosting growth and lowering unemployment this year.

Ben Bernanke, the Fed chairman, said it was "a little premature to declare victory" in the battle to ensure a sustainable economic recovery from the credit crisis, but the central bank is now predicting GDP growth of between 2.4 per cent and 2.9 per cent this year.

That is up from the 2.2 to 2.7 per cent range its officials predicted in January, though would be a small slowdown from the 3 per cent annualised growth rate the economy achieved in the final quarter of 2011. The Fed also improved its forecast for unemployment, which it sees falling to 7.8 per cent by the end of the year, instead of remaining at the current rate of 8.2 per cent or even rising, as it had predicted in January.

Mr Bernanke gave no indication that the Fed would quickly reverse the quantitative-easing policies that have pumped around $2trn (£1.2trn) into financial markets in a bid to hold down rates on mortgages and lending to businesses.

"Those tools remain very much on the table and we will not hesitate to use them should the economy require additional support," he said.

Clouding the outlook has been a series of disappointing economic statistics in recent weeks and a sense that a strong start to this year, assisted by very mild weather across the US, has given way to renewed caution.

The Fed's statements last night came on the heels of the worst read-out for durable-goods orders in two years.

Durable goods are long-lasting investments such as factory equipment and IT hardware, and as such are a good indication of business leaders' optimism or otherwise for the medium-term economy.

In March, orders dropped 4.2 per cent, the largest decline since January 2009, when the US economy was nose-diving. The consensus of analysts' forecasts was for a decline of 1.7 per cent.

The Fed's latest monetary policy statement included a modest downgrade to its view of the US economy; the rate-setting Federal Open Market Committee excised language suggesting financial market strains were easing.