To aid recovery, Fed holds rates at record lows

March 17, 2010 at 12:00a.m.

Associated Press

WASHINGTON

The Federal Reserve on Tuesday repeated its pledge to hold interest rates at record lows to foster the economic recovery and ease high unemployment.

But the Fed’s assessment of the economy was a bit more upbeat. It said the job market is stabilizing. That was an improvement from its January statement, when it said the deterioration in the labor market was abating.

It also said business spending on equipment and software has risen significantly, also an upgrade from its last assessment. Still, the Fed cautioned that spending by consumers could be dampened by high unemployment, sluggish income growth, lower wealth and tight credit. And it noted weakness in the commercial real-estate and home-building markets.

“The Fed painted the economy in a slightly brighter shade,” said Stuart Hoffman, chief economist at PNC Financial Services Group. “It’s been painted black for so long. Now, it is a lighter shade of gray.”

The Fed held its target range for its bank lending rate at zero to 0.25 percent, where it’s been since December 2008. In response, commercial banks’ prime lending rate, used to peg rates on certain credit cards and consumer loans, has remained about 3.25 percent — its lowest in decades.

Super-low rates benefit borrowers who qualify for loans and are willing to take on more debt. But they hurt savers. Low rates are especially hard on people living on fixed incomes who are earning scant returns on their savings.

The Fed’s pledge to keep record-low rates for an “extended period” relieved investors. The Dow Jones industrial average rose about 44 points. Before the announcement, it had posted a gain in the single digits.

Prices for Treasurys rose slightly. The yield on the benchmark 10-year Treasury fell to 3.66 percent from 3.68 percent just before the announcement.

The Fed made no changes to a program to drive down mortgage rates and bolster the housing market, even as a government report Tuesday showed housing construction tumbling in February.