Fed cuts US GDP growth forecast

Ben Bernanke will give his first press conference later

The Federal Reserve has kept interest rates at between zero and 0.25%, as chairman Ben Bernanke prepares to hold his first press conference.

The Fed said “economic recovery is proceeding at a moderate pace” while the labour market “improves gradually”.

It added it would continue its monetary stimulus policy until June.

Mr Bernanke will outline later the views of central bank board members on rates as well as give his overall outlook for the US economy.

Investors around the world will be watching his words closely.

In its interest-rates statement, the Fed said household spending and business investment in equipment and software continued to grow. However, it highlighted the fact that the housing market remained depressed.

It also said it would continue with its stimulus policy, known as quantitative easing, and would complete its second round of purchases totalling $600bn (£363bn) as scheduled by the end of June.

In his first press conference, Mr Bernanke is likely to discuss the recent move by international ratings agency Standard & Poor’s to put the US on a negative outlook.

It said the US could lose its top-level credit rating due to the lack of a plan to bring down its growing deficit and tackle its debt.

Although the Fed is not responsible for the US government’s high debt levels, the media will expect Mr Bernanke to hold strong views about how and when this should be addressed.

The introduction of regular press conferences by the chairman of the Fed is seen as a way for the bank to explain its policy decisions and address directly criticisms of its handling of the financial crisis, and even its inability to prevent it in the first place.

The US economy grew by an annualised rate of 3.1% in the final three months of last year, but some economists expect the rate of growth to have slowed in the first quarter of this year.

The January to March GDP figures are published on Thursday.

The US unemployment rate is also falling, and hit a two-year low of 8.8% in March. However, inflation jumped sharply last month to 2.7%, largely due to big rises in food and petrol prices.

This mixed picture is the main reason why the Fed kept rates at a record low of zero to 0.25%, where they have been since December 2008.

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