The US Federal Reserve expects to keep short-term interest rates close to zero "at least through late 2014" – longer than previously indicated – chairman Ben Bernanke said as he expressed concerns about the pace of the recovery.
The decision means the Fed fears the economy will not fully recover from the recession that started in 2008 for at least another two years. "I don't think we're ready to declare that we've entered a new, stronger phase at this point. We'll continue to look at the data," Bernanke said at a press conference.
The Fed's pessimism contrasts with Barack Obama's positive message about the economy in his state of the union speech on Tuesday night, and underlines the scale of the challenge he faces to convince American voters to give him a second term.
"While indicators point to some further improvement in overall labour market conditions, the unemployment rate remains elevated," the Fed said in a statement released after a two-day meeting. "Household spending has continued to advance, but growth in business fixed investment has slowed, and the housing sector remains depressed."
For the first time the Fed released a quarterly economic forecast, detailing committee members' thoughts about how long they believe the Fed should retain its three-year-old policy of holding short-term interest rates near zero.
Bernanke said 11 of the 17 members of the Federal Open Markets Committee (FOMC) believe rates will be at or below 1% in 2014, six believe they will be higher.
The Fed said it expects unemployment to be between 8.2% and 8.5% at the end of 2012, a slight improvement on projection from a few months ago. The majority believed unemployment would be below 7% by 2014.
"There has certainly been some encouraging news recently," Bernanke said. "At the same time we have had mixed results in other areas, such as retail sales, and we continue to see headwinds from Europe."
Since the recession began the Fed has committed to two massive rounds of asset purchases, known as qualitative easing, to kickstart sluggish lending markets. Bernanke said that the Fed could take further action "if conditions warrant".
Bernanke refused to comment on attacks from Republican presidential candidates, particularly Ron Paul, who have called for him to be sacked and the Fed to be disbanded. "I'm not going to get involved in political rhetoric," he said. "I have a job to do."
