WASHINGTON – The Federal Reserve struck a more cautious tone about the strength of the U.S. economic recovery, indicating Europe’s debt crisis poses a risk to it.

Wrapping up a two-day meeting Wednesday, the Fed in a 9-1 decision retained its pledge to hold rates at record-low levels for an “extended period.” Doing so is intended to energize the rebound.

The Fed expressed confidence that the recovery will stay intact despite threats from abroad and at home. But Chairman Ben Bernanke and his colleagues offered a slightly more reserved outlook than the last time they convened.

The Fed said the economic recovery is “proceeding.” That was a bit less upbeat than the view at the April meeting when the Fed said economic activity continued to “strengthen.” The Fed also said the labor market is “improving gradually.”

While not mentioning Europe by name, the Fed said “financial conditions have become less supportive of economic growth largely reflecting developments abroad.”

Given the risks to the recovery, the Fed left a key bank lending rate at between zero and 0.25 percent. The rate has remained at that level since December 2008.

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That means rates on certain credit cards, home equity loans, some adjustable-rate mortgages and other consumer loans will remain low. Commercial banks’ prime lending rate would stay at about 3.25 percent, the lowest point in decades.

Low rates serve borrowers who qualify for loans and are willing to take on more debt. But they hurt savers. Low rates are especially hard on people on fixed incomes who are earning scant returns on their savings.

Still, if the rates spur Americans to spend more, they would help invigorate the economy. That’s why the Fed maintained its pledge, in place for more than a year, to keep rates at record lows for an “extended period.”

 


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