Print edition: 
WASHINGTON — Federal Reserve officials Tuesday retained their pledge to keep the main interest rate near zero for an "extended period" and confirmed that $1.25 trillion in purchases of mortgage-backed securities will end this month.
"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," the Federal Open Market Committee said in a statement Tuesday in Washington.
Fed Chairman Ben Bernanke is trying to determine how long to hold down borrowing costs to strengthen the recovery from the worst slump in decades and to reduce joblessness persisting near a 26-year high. At the same time, policymakers are developing tools to tighten credit and ensure $1.2 trillion in excess bank reserves doesn't stoke inflation.
The economy will probably grow by 2.8 percent in the first quarter of 2010, according to the median estimate of a Bloomberg News survey of economists this month, after expanding 5.9 percent in the fourth quarter of 2009.
Retail sales unexpectedly climbed in February, consumer borrowing rose in January for the first time in a year and commercial mortgage-backed bond returns are accelerating. Meanwhile, the Fed's preferred gauge of inflation, which excludes food and energy, has stayed tame.
Officials repeated that their program to buy $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt will be completed by the end of March.
"Those purchases are nearing completion, and the remaining transactions will be executed by the end of this month," the statement said.
Thomas Hoenig, president of the Kansas City Fed, dissented for the second straight meeting and said "that continuing to express the expectation of exceptionally low levels of the federal funds rates for an extended period was no longer warranted because it could lead to the build up of financial imbalances," the statement said.
The Fed has kept the federal funds rate target for overnight loans between banks in a range of zero to 0.25 percent since December 2008. Policymakers began using the "extended period" language in March 2009 and have repeated it at each meeting since then.
Economic growth is helping to stanch job losses. Payroll declines have slowed to an average 27,000 a month from November through February, compared with an average 252,000 from July through October. The U.S. may add as many as 300,000 jobs this month, the most in four years, said David Greenlaw, chief fixed-income economist at Morgan Stanley in New York.
The unemployment rate was unchanged at 9.7 percent in February.
"Things are definitely getting better," Jeffrey Immelt, CEO of General Electric, said at a conference on March 11 in Washington. "The credit markets are much improved. Most indicators are firming or heading up."
"But there's a long road ahead," with high unemployment and "big structural issues" in the economy, said Immelt, who is also a member of the New York Fed board.
Borrowers raised a record $1.24 trillion in the U.S. corporate bond market last year, according to data compiled by Bloomberg. While down from that pace, issuance this year remains elevated, with $248.3 billion raised.
Inflation is showing little sign of taking off. The Fed's preferred price index, which excludes food and energy costs, rose 1.4 percent in January from a year earlier, below the long-run range of 1.7 percent to 2 percent policymakers want for total inflation.
"It's still the case that the economy is weak, and you still have no evidence of a pickup in inflation or inflation expectations," said J. Alfred Broaddus, former president of the Richmond Fed.
