Fed again vows to hold rates at record lows

The Federal Reserve pledged yesterday to keep a key interest rate at a record low for an "extended period," signaling that the weak economy remains dependent on government help to grow.

The Fed said economic activity has "continued to pick up" and that the housing market has strengthened -- a key ingredient for a sustained recovery.

But Fed Chairman Ben Bernanke and his colleagues warned that rising joblessness and tight credit for many people and companies could restrain the rebound in the months ahead.

"Economic activity is likely to remain weak for a time," they said.

Against that backdrop, the Fed kept the target range for its bank lending rate at zero to 0.25 percent. And it made no major changes to a program to help drive down mortgage rates.

Commercial banks' prime lending rate -- used to peg rates on home equity loans, certain credit cards and other consumer loans -- will remain about 3.25 percent, the lowest in decades.

Most analysts don't think the Fed will begin to boost rates until spring or summer.

Fed policymakers "believe they need to keep rates low to ensure that the recovery doesn't falter," said Joel Naroff of Naroff Economic Advisors.

The central bank hopes low rates will encourage consumers and businesses to boost spending, which would invigorate the recovery. The Fed signaled that it can continue to hold rates low because inflation is all but nonexistent.

The Fed now has entered a new phase: managing the recovery rather than fighting the worst recession and financial crisis to hit the country since the Great Depression.

The economy began growing last quarter for the first time in more than a year.