The Fed announced today that it will maintain its target for the federal funds rate in the 0 percent to 0.25 percent range, and expects economic conditions to warrant exceptionally low levels of the federal funds rate for an extended period of time.  “Information….  suggests that economic activity continues to strengthen and that deterioration in the labor market is abating,” the Fed said in a prepared statement.  “Household spending is expanding at a moderate rate, but remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit.  Business spending on equipment and software appears to be picking up, but investment in structures is still contracting and employers remain reluctant to add to payrolls.  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 Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability,” the Fed said.

To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve also said it will purchase a total of $1.25 trillion of agency mortgage-backed securities and nearly $175 billion of agency debt, and will gradually slow the pace of these purchases in order to promote a smooth transition in markets.