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New Fed holds rates steady says 3Q growth stronger

WASHINGTON (11/2/11--FILED 1:15 p.m. ET)--The Federal Reserve's policymakers, saying that third quarter growth is stronger, today held the target rate for federal funds at 0% to 0.25% and indicated that it would hold rates at "exceptionally low levels" at least through mid-2013.

The vote was nine to one, with Charles L. Evans supporting further easing at this time.

The Federal Open Market Committee (FOMC), which sets the Fed's monetary policy, acknowledged that economic growth reflects "in part a reversal of the temporary that had weighed on growth earlier in the year. Nonetheless, recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated."

The target rate has been near 0% to 0.25% since December 2008.

Household spending "has increased at a somewhat faster pace in recent months," the committee noted.  It said business investment continued to expand "but investment in nonresidential structures is still weak, and the housing sector remains depressed. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable."

The committee is mandated to seek to foster maximum employment and price stability, and its statement after its two-day meeting said it expects "a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate."

It recognized "significant downside risks to the economic outlook, including strains in global financial markets." The FOMC said it anticipates that inflation will settle during the coming quarters "at levels at or below those consistent with" its dual mandate as the effects of past energy and other commodity price increases dissipate further. However it will monitor inflation and inflation expectations closely, it said.

The FOMC said it will continue its "Operation Twist" program to extend the average maturity of its holdings of securities, as announced in September, and will maintain its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. It will regularly review the size and composition of its securities holdings and "is prepared to adjust those holdings as appropriate."

The committee's statement indicted it will "continue to assess the economic outlook in light of incoming information and is prepared to employ its tools to promote a stronger economic recovery in a context of price stability.'

Voting for the policy action were: Ben S. Bernanke, chairman; William C. Dudley, vice chairman; Elizabeth A. Duke; Richard W. Fisher; Narayana Kocherlakota; Charles I. Plosser; Sarah Bloom Raskin; Daniel K. Tarullo; and Janet L. Yellen. Evans was the lone dissenter.

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