U.S. Fed keeps interest rate unchanged

The U.S. Federal Reserve announced Wednesday to keep the federal funds rate at historic low level of zero to 0.25 percent "for an extended period" to boost the economic recovery.

U.S. "economic activity has continued to strengthen and that the labor market is beginning to improve," the Fed said in a statement after policymaking panel meeting.

Federal Open Market Committee (FOMC), the interest rate policy making body of the central bank said that it will maintain the target range for the federal funds rate and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

Based on information received since the FOMC met in March, the Fed said that U.S. household spending is expanding at a moderate rate but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.

Business spending on equipment and software has risen significantly. However, investment in nonresidential structures is declining, housing starts have edged up but remain at a depressed level, and employers remain reluctant to add to payrolls.

The central bank said that while bank lending continues to contract, financial market conditions remain supportive of economic growth.

Although the pace of economic recovery is likely to be moderate for a time, the FOMC anticipates a gradual return to higher levels of resource utilization in a context of price stability.

The Fed's decision to keep rates at record lows drew one dissent. Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, for a third straight meeting opposed keeping the yearlong pledge.

Hoenig believed that continuing to express the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted because it could lead to the buildup of financial imbalances and increase risks to longer-run macroeconomic and financial stability.