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US Fed says it will keep on buying bonds until October

Central bank cautious even as it admits recession shows signs of levelling out

America's Federal Reserve will keep buying US Treasuries until the end of October as the central bank works out a way to wean financial markets off its extraordinary bout of quantitative easing.

In a highly anticipated statement on monetary policy, the Federal Open Market Committee said yesterday that it would spread out what is left of the $300bn (£181bn) it vowed to spend on government debt in its attempt to push down market interest rates.

Earlier this week, the bank appeared to cut the size of its regular purchases, something it explained yesterday, saying: "To promote a smooth transition in markets as these purchases of Treasury securities are completed, the committee has decided to gradually slow the pace of these transactions and anticipates the full amount will be purchased by the end of October."

Previously, the committee had set a vaguer deadline of "autumn". The new wording simultaneously gives the Fed more time but also a more definite deadline for ending this aspect of its quantitative easing programme.

With formal interest rates already set at or close to zero, the world's central banks have turned to quantitative easing – in effect, the printing of money by pumping it into the economy through the purchase of government and other bonds – to drive down interest rates for mortgages and business loans. Economists have been seeking clues as to how these programmes will be wound down as the markets return to normal after the credit crisis.

The Fed maintained its cautious stance on the US economy yesterday, even as it recognised the steady trickle of improved data since it last met in June. The committee said it thought the recession was "levelling out". "Household spending has continued to show signs of stabilising but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit," it added. "Businesses are still cutting back on fixed investment and staffing but are making progress in bringing inventory stocks into better alignment with sales."

There were signs of a bottom to the global recession in US trade figures for June, released yesterday. Imports and exports both rose by more than 2 per cent since May, although the increased value of imports to the US was largely accounted for by rising oil prices.

Imports of consumer goods continued to fall, suggesting that American consumers – once the engine of global economic growth – were still under strain. Netting imports against exports, the US trade deficit was a lower than expected $27bn, up from $26bn in May.