Fed says U.S. economic recovery is underway

Things are looking up for the U.S. economy, with activity picking up after a severe downturn, according to the Federal Reserve, which announced Wednesday that it had upgraded its assessment of the country’s current economic state.

The Fed, however, renewed its vow to keep interest rates exceptionally low for the time being due to the fragility of the recovery. The department said it would also slow purchases of mortgage debt until the end of March when it hopes to step back in its economic support during the downturn.

“Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn,” the Fed said in a statement after its two-day policy meeting.

The announcement also stated: “conditions in financial markets have improved further and activity in the housing sector has increased.”

According to records, U.S. government bond prices improved as a result of the Fed’s reiteration to keep rates especially low. The Fed also announced that inflation would remain low for some time, and that it would slow its purchases of mortgage-related debt to promote smooth market transitions.

“I think it confirms that the economy still needs a little bit of help and that rates aren’t going to go up anytime soon,” said Alan Lancz at Alan B. Lancz & Associates in Toledo, Ohio.

However, in a slight tweak of language from a previous statement, the Fed made clear it would purchase $1.25 trillion of agency mortgage-backed securities. In August the Fed had stated it would purchase “up to” that amount. Those two words were removed in Wednesday’s announcement.

Last year, according to records, the Fed nearly doubled the size of its balance sheet to more than $2 trillion as it continued to flood financial markets with money during the economic crisis. This support is being maintained, in an effort to keep lending rates low, through a campaign to purchase $300 billion of U.S. government bonds and $1.45 trillion of mortgage-related debt, including $200 billion of debt issued by government-backed mortgage finance agencies.

The Fed opted in August, however, to slow Treasury purchases by the end of October.