The US Federal Reserve left its key interest rate at a record low at the last meeting for 2009 in Washington overnight.
The central bank made its usual post-meeting statement around 6.15 am today, our time.
So no change in the rate, at 0% to 0.25%. Markets were left directionless and the Dow closed in the red, after modest early gains.
The Fed found more signs of an improving economy, but nowhere near enough to change its stance on keeping rates low "for an extended period of time."
There has been no change in the wording of the key paragraph in the statement for the last few Fed Open Market Committee meetings and the latest meeting was no exception.
"The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent 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."
The big question was whether Chairman Ben Bernanke and the rest of the Committee would change this wording to send a message that they see inflation rising in the not too distant future.
The answer was no, even though producer inflation perked up last month, unemployment fell and industrial production rose at a faster rate in November than forecast (0.8% vs. 0.6% forecast and an unchanged 0.1% in October).
Consumer prices edged higher in November, but are not causing alarm, unlike the hike in producer prices.
New home starts reversed some of October’s falls last month, but that was due to a big rise in multi-family projects (home units) while single family starts rose 2.1%.
So the Fed’s line on inflation didn’t change.
"With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time."
But the central bank saw more signs of a brightening economy.
"Information received since the Federal Open Market Committee met in November suggests that economic activity has continued to pick up and that the deterioration in the labor market is abating.
"The housing sector has shown some signs of improvement over recent months.
"Household spending appears to be expanding at a moderate rate, though it remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit.
"Businesses are still cutting back on fixed investment, though at a slower pace, and remain reluctant to add to payrolls; they continue to make progress in bringing inventory stocks into better alignment with sales.
"Financial market conditions have become more supportive of economic growth.
But the Fed reminded the market that its special liquidity support schemes will expire at the end of March, a move that could produce an upward surge in market interest rates.
"To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt.
"In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter of 2010."
Last week, Mr Bernanke and other Fed officials made it clear they are in no rush to start raising rates.
But some politicians in Congress and nervous nellies in the markets (they all saw the recession and the credit crunch, didn’t they?) who are now ‘expert’ on inflation and stimulus spending, want the Fed to wind things back.The 1.8% lift in wholesale prices in November was due mostly to higher energy product prices, which have now retreated.
November’s rise was up sharply from a 0.3% rise in October (and there were some analysts worrying about deflation).
Omitting energy and food, so-called "core" prices rose 0.5%, the biggest rise in more than a year.
Car prices have risen, especially since the cash for clunkers scheme ended.
Increased car production helped lift industrial production 0.8% last month, the largest gain since August. Factories and mines boosted production solidly after cutbacks in October.
Production at gas and electric utilities fell thanks to mild weather conditions in much of the north of the country.
Even with the stronger-than-expected rise, output is still 5.1% lower than a year ago.
Industrial capacity utlisation rose, but is also more than 9% under its long term level.
Retail sales last month were stronger than in October and a year ago.
The US economy finally returned to growth in the third quarter, after four straight negative quarters.
There are signs the level of activity is rising and the economy will finish the year much stronger than it started.
