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Fed: Let's Keep It at Zero

WASHINGTON ( TheStreet) -- The Federal Reserve's policymaking arm kept the target fed funds rate unchanged at the zero to 0.25% level, as expected Wednesday.

The Federal Open Market Committee also maintained language promising to keep interest rates low "for an extended period," which may have been somewhat surprising to those who believe the Fed will begin prepping investors for an eventual rate hike by slightly altering the much-debated phrase .

The target interest rate has remained unchanged at near-zero levels since December 16.
Federal Reserve Chairman Ben Bernanke

In a more encouraging review of the job market, the FOMC noted that "the labor market is beginning to improve" compared with its previous assessment that it was merely "stabilizing." The Committee also noted a recent pickup in household spending, a significant rise in business spending on equipment and software and housing starts that have "edged up." In keeping with previous statements, Committee members expressed continued concern about "high unemployment, modest income growth, lower housing wealth and tight credit."

Additionally, the FOMC statement said housing starts are still weak, bank lending remains low and resource slack will likely stave off inflation pressures for a while.

Once again, Kansas City Fed President Thomas Hoenig was the only member to vote against the policy action -- as he has during the FOMC's two previous meetings. The statement included Hoenig's previous warning that expectations for exceptionally low rates for an extended period is no longer warranted and could raise future imbalances as well as increase risks to long-term stability. This time, however, the statement also included Hoenig's concern that the phrase could limit "the Committee's flexibility to begin raising rates modestly."

"The statement really couldn't have lined up much more closely with broader expectations," said Keith Hembre, chief economist at First American Funds of Minneapolis.

Economic data continues to indicate steady improvements. On Tuesday, the Conference Board's Consumer Confidence Index jumped to 57.9 in April, from 52.3, marking the highest reading since November 2008. The level easily outpaced economists' estimates for a reading of 53.5. Additionally, the current earnings season has been better than expected with companies across sectors topping estimates and noting improving conditions.

Job creation, however, remains the real test of the recovery's strength and market watchers are already looking ahead to the U.S. government's April jobs report, due May 7.

-- Written by Melinda Peer in New York.

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