Last Wednesday, the Federal Reserve stated that it would keep short-term interest rates near 0% although the central bank announced that the economy was recovering from its crisis.

The Federal Reserve had a 2-day meeting prior to the announcement and they have come to a decision that they are not in a hurry to raise interest rates regardless of the soaring deficits of the federal government. There is a raising concern that the Fed’s stimulus measures will in the end drive up inflation and despite this concern, they are still going to push the rates down nearing 0%.

In order to keep the economy from collapsing, the Fed announced a cautious move toward eventually pulling back from its unusual interventions in financial markets. The Fed is about two-thirds of the way through its previously announced plan to buy as much as $1.25 trillion of government agency mortgage-backed securities by the end of this year. On Wednesday, the central bank said it would buy the full $1.25-trillion amount but would “gradually slow these purchases” until they are completed next March, along with another program to buy $200 billion in agency debt.

The mortgage rates is expected to stay low until spring next year but there is fear that the rates will rise again after March 2010 when the Fed stops buying mortgages which could put the kibosh on the recovery.

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