Federal Reserve holds rates steady

The U.S. Federal Reserve Board Wednesday held U.S. interest rates to their current range of zero to 0.25 per cent.

The decision was widely expected. The range has not changed for more than a year as part of a plan to revive economic activity.

The board's commentary, which accompanied its announcement, also suggested no changes in its underlying policy on rates in the future.

It said inflation remains "subdued" and warrants "keeping rates at low levels for an extended period." Since the board's last meeting in December, it said, the U.S.economy has "continued to strengthen," butthe pace of recovery "will be moderate for a time."

One member, Thomas M. Hoenig, the president of the Federal Reserve Bank of Kansas City, disagreed with that view and wanted the board to drop its pledge to keep rates low for anextended period.

Some economists are concerned that signalling that rates will stay low for a prolonged period will encourage a speculative bubblebased on excessive borrowing, especially in real estate.

Millan Mulraine, an economics strategist with TD Securities, said in a commentary that Hoenig's view might foreshadow a move by the central bank to eventually increase rates.

Fed mayset up markets for a rate increase

"We believe that the Fed may perhaps begin tinkering with the wording of the statement to prepare markets for the eventual rate hike," he said, "though not necessarily at the next meeting."

The commentary was released amid continuing debate among lawmakers over the nomination of Ben Bernanke to a second term as chairman of the central bank. Bernanke's term is set to expire on Jan. 31, 2010.

U.S. President Barack Obama nominated him to sit a second term in late 2009, and a final vote to confirmthepostin the two houses is expected by the end of the week.

"He has my strongest support. I think he's done a good job," Obama told ABC News on Monday.

Bernanke has been criticized by some in Congress for failing to put an end to the risky bank practices that are blamed for causing the financial crisis and for the Federal Reserve's role in the $182 billion US bailout of New York-based insurer American International Group Inc.