THE FEDERAL Reserve held monetary policy steady last night and said the US economic recession was easing, as it signalled that its worries over a possible troubling downward spiral in prices were fading.

Concluding a two-day meeting, the central bank said it had decided to hold overnight interest rates in a zero to 0.25 per cent range – the level reached in December – and repeated that they would probably stay unusually low for some time.

With the benchmark interbank lending rate virtually at zero, the Fed has focused on driving down other borrowing costs by buying mortgage-related debt and US government bonds.

In a statement, the Fed’s policy-setting panel said it would hold to a previous pledge to buy $1.45 trillion (€1.05 trillion) in mortgage-related debt by year-end and $300 billion in longer-term US government debt by autumn, a decision financial markets had largely expected.

“Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing,” the Fed said. “Conditions in financial markets have generally improved in recent months.”

US stock prices slipped after the statement, with the blue chip Dow Jones industrial average falling into negative territory, while the value of the dollar rose and prices for US Treasury debt dropped.

The central bank dropped a phrase it had used in its last statement in April, in which it warned inflation could run below desired levels for a time – a suggestion that officials were worried about a broad-based deflation.

While appearing more comfortable regarding deflation risks in their latest statement, policymakers made clear that inflation was not yet a concern. – (Reuters)