Fed to hold rates near zero, mulls other tools (Source: ET)

Fed to hold rates near zero, mulls other tools

WASHINGTON: The Federal Reserve resumed a policy meeting on Wednesday that some investors hoped might end with a signal it was moving closer to buying long-term government bonds now that its traditional interest rate cutting tools have been exhausted. Policy-makers are expected to focus on steps aimed at lowering borrowing costs for businesses and consumers, adding to measures that have already doubled the size of the Fed's credit to financial system to more than $2 trillion. The central bank will also assure investors they can keep short-term rates very low for a long time. The central bank will issue a statement around 2:15 p.m. With benchmark overnight rates lowered as far as they can go -- to a range of zero to 0.25 percent -- investors are waiting to hear what else the Fed plans to do to lower other borrowing costs and spur economic growth. The Fed's efforts are part of a broader government campaign to combat a year-long recession and a financial crisis that is stalling economies around the globe. President Barack Obama is aggressively promoting an $825 billion government tax-cut and spending plan to provide an economic boost and his administration is wrestling with steps might to prop up an ailing banking system. In its statement, the Fed is expected to discuss unconventional measures to ease stress in financial markets. In a statement after its last policy meeting in December, the central bank said it was weighing the benefits of purchases of long-dated Treasury debt to push down borrowing costs. Government bond prices rose on Wednesday on expectations the Fed would move closer to that initiative. "That's the bond market hope," said Kim Rupert, managing director, global fixed-income analysis with Action Economics LLC in San Francisco.