Financial markets have improved, but interest rate will still remain low

 On Wednesday the Federal Reserve reported its new assessment of the economy state saying the growth is back again after the recession. Meantime the central bank said that it would still keep interest rates very low for a long time.

Besides, the Fed also stated that it plans to slow its purchases of mortgage debt to extend that program's life until the end of March as it wants to contract its extraordinary support for the economy and markets during the recession.

"Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn," the Fed said in a statement after its two-day policy meeting.

"Conditions in financial markets have improved further and activity in the housing sector has increased," it said.

As the central bank repeated its intention to hold interest rates low US government bond yields ended lower on the news.

"I think it confirms that the economy still needs a little bit of help and that rates aren't going to go up anytime soon," said Alan Lancz at Alan B. Lancz & Associates in Toledo, Ohio.

On the other hand a stock market was agitated on concerns the Federal Reserve is pulling back from its efforts to stimulate the economy. The Dow Jones industrial average ended down 81.77 points or 0.83 percent at 9,748.10.

"There's still a lot of problems with mortgages, the housing market in general as well as the banking sector," said Dan Faretta, a market strategist at Lind-Waldock, a brokerage firm, in Chicago.

While saying it is going to slow the pace of its purchases of mortgage-related debt the Fed made clear it would purchase the full amount of $1.25 trillion in agency mortgage-backed securities.

The U.S. central bank also played down concerns about price pressures in an economy where the jobless rate is at a 26-year high and factory capacity is greatly underutilized.

Policy-makers said inflation would remain subdued for some time with substantial slack in the economy dampening cost pressures, and with long-term inflation expectations stable.