The US Federal reserve kept rates on hold at 0% to 0.25% for a ninth successive meeting and continued its view that they will remain at current levels "for an extended period of time".
The Fed said the US recovery was growing, but not in housing.
The decision, contained in the Fed’s post-meeting statement early today, came as world sharemarkets wobbled for a sixth straight day.
Wall Street fell before the announcement, rose, then fell, then closed up.
Oil fell under $US74 a barrel, gold fell under $US1100 an ounce and copper dropped by a nasty 4.2%, or 14.25c to around $US3.20 a pound.
Other commodities also weakened, and yields on US 10 year bonds fell to 3.63%, where they were a month ago.
European and Asian markets were again weak.
Asian markets remain rattled by further moves by China to cut bank lending and by the malaise emerging in Japan.
The Fed said in today’s statement:
"The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period."
In the US more evidence emerged that the very troubled housing sector could be losing ground again with new home sales falling unexpectedly in December.
New home sales fell to a 9-month low, down 7.6% to a seasonally-adjusted annual rate of 342,000 in December from a revised rate of 370,000 in November
The December figure was also the lowest since March, when 332,000 new homes were sold, and 8.6% below the December 2008 level of 374,000.
In fact the US housing market is showing signs of fatigue after a surge in sales as from March as first-time buyers took advantage of a tax credit, which had been scheduled to expire in November.
That credit has now been expanded and extended until June this year and analysts had expected sales in December to pick up after November’s dip. They didn’t, perplexing the industry and economists.
The Commerce Department’s figures showed that just 374,000 new homes were sold in 2009, down 23% from the depressed 2008 figure of 485,000 and the lowest since the department began preparing the data in January of 1963.
As well, corporate profits continue to underperform analyst forecast (leading us to believe that analysts are too optimistic). Caterpillar did well, but not as well as some analysts had wanted to believe. So did Yahoo.
The combination of low interest rates and the injection of trillions of dollars of stimulus into the system helped fuel the stock market rally last year and take the edge off the worst recession since the Great Depression.
With his term set to expire Sunday, questions remain about whether Fed chairman, Ben Bernanke has enough votes in the Senate to force a confirmation vote. 60 votes are needed and worries that his term might not be renewed played a big part in the instability in markets, especially in the US, in recent days.
Obama Administration officials say Mr Bernanke will get the required number of votes for a second term.
As well President Obama has unsettled markets with his policy switch on bank regulation.
He makes his State of the Union address later this morning, Australian time, and is expected to flesh out plans to control the US budget deficit and cut spending. Plans already announced call for a three year spending freeze, which leftish Congress members have rejected.
The President is not expected to directly discuss his plans to carve up the banks in the State of the Union speech, but his rhetoric on the banking system and the economy will be closely watched to see if the new populist tone is continued.
Importantly, one change in the statement from the December meeting was the dropping of a line saying the housing sector ”has shown some signs of improvement over recent months.”
Keep a close eye on the housing sector, it triggered the crunch and recession, it could lead a double dip in coming months.