The latest Labor Department monthly report reveals that the Consumer Price Index, which measures inflation pressures at the consumer level, increased 1.8% from a year ago, and rose 0.4% in November.

The November reading was inline with most analysts’ expectations, and follows a 0.3% gain in October. The cost of living for Americans increased due to several categories, but was led by 4.1% jump in energy prices — the fourth straight monthly increase. Oil prices shot up 9%. Gasoline prices notably rose as well, soaring 6.4% in November after an increase of 1.6% in the month prior.

The so-called core consumer index that excludes the more volatile food and energy items was unchanged in November, marking the first month in ten without an increase. Analysts were expecting a 0.1% increase. The core CPI rose 0.2% in October.

The annual inflation increase of 1.8% compares to the 0.2% drop in the past 12 months that was reported in October. Core inflation increased 1.7% over the past 12 months, matching the annual reading in October. The inflation figure is within the Federal Reserve’s comfort range of between 1%-2%.

Fed policy makers are scheduled to wrap up a two-day meeting later today. No significant changes in policy are expected, with interest rates likely held at 0% to 0.25%.

"I expect more of the same from today’s Fed comments. I think they’ll talk up continued low interest rates and economic healing. I don’t think expect them to change their tune," John Massey, portfolio manager at AIG Sunamerica Asset Management in Jersey City, New Jersey, said on Reuters.

Consumer price details

Rising November prices include:

• New vehicles prices rose 0.6% after a 1.6% rise in October
• Used car and truck prices climbed 2.0% compared to the 3.4% increase during the month prior
• Energy prices soared 4.1% following a 1.5% increase in October
• Gasoline prices jumped 6.4% following an increase of 1.6% from the month prior
• Fuel oil prices surged 9.0%. They rose 6.3% in October.
• Electricity costs were up 1.4% after increasing 0.6% in the two previous months
• Food prices rose 0.1%, matching October
• Airfares rose for the fifth straight month, increasing 3.8% in November
• Natural gas prices rose 1.5% following a 1.9% up tick in October
• Medical care prices climbed 0.3% in November. Prices were up 0.2% in October.
• Prescription drugs climbed by 0.2%.
• Tobacco prices advanced 1%

Declining November prices include:

• Dairy and related products declined 0.7% after increasing 1.0% in October
• Lodging away from home prices fell 1.5% after a rise of rose 0.4%
• Clothing prices declined 0.3% in November after declining 0.4% in the month prior
• Housing prices, which accounts for about a third of the CPI index, decreased 0.2% after unchanged readings from the two prior months

On Tuesday, the Labor Department released the Producer Price Index, which measures prices at the factory door and inflation pressures before they reach the consumer. The PPI showed a 1.8% surge in November. Discounting volatile food and energy prices, the core reading climbed more than expected at 0.5% — the biggest increase since October 2008. Core prices retreated 0.6% in the month prior.

To find out how the buying power of the dollar has changed over time, check out the updated US Inflation Calculator.

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

September inflation data indicated that consumer prices declined 1.3% during the prior 12 months and that core annual inflation, which excludes volatile food and energy prices, rose just 1.5% — well within the Federal Reserve’s comfort range of between 1%-2%.

It appears its benchmark federal funds rate will remain virtually at zero for some time as the "economic activity is likely to remain weak for a time," according to the FOMC.

"The one consistent theme with all the Fed speakers is that they’re not going to raise rates any time soon," Drew Matus, an economist at Bank of America-Merrill Lynch, was quoted on NYTimes.com. "That is the one consistent theme that gets hammered home time and again."

In a unanimous vote, the FOMC decided to keep its key rate unchanged in a range of zero to 0.25 percent.

The released Fed statement follows in its entirety:

Information received since the Federal Open Market Committee met in September suggests that economic activity has continued to pick up. Conditions in financial markets were roughly unchanged, on balance, over the intermeeting period. Activity in the housing sector has increased over recent months. Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.

Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that 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.

To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt purchases, while somewhat less than the previously announced maximum of $200 billion, is consistent with the recent path of purchases and reflects the limited availability of agency debt.

In order to promote a smooth transition in markets, the Committee will gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities and anticipates that these transactions will be executed by the end of the first quarter of 2010. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

To provide support to mortgage lending and housing markets, the Fed noted that it expects to finish purchases of "$1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt" in a slowing pace until the first quarter of 2010.

August inflation data showed that consumer prices had decreased 1.5% during the prior 12 months and that core annual inflation, which excludes volatile food and energy prices, rose just 1.4%. That was the smallest year-over-year gain since February 2004, and well within the Federal Reserve’s traditional comfort zone of between 1%-2%.

However, with the massive Fed injection of money into the markets to stimulate the economy, the fear of approaching inflation is a concern for many.

"The Fed has printed a lot of money and unless Milton Friedman was wrong, when you print money inflation is going to be a problem," said John Norris, managing director of wealth management with Oakworth Capital Bank in Birmingham, Ala., in reference to the late Nobel Prize-winning economist and free market champion.

The Fed doubled the size of its balance sheet to more than $2 trillion.

An overview of the two-day meeting is provided in the following video report by Conway Gittens from Reuters.

In addition, the released FOMC statement follows in its entirety:

Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn.  Conditions in financial markets have improved further, and activity in the housing sector has increased.  Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit.  Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales.  Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability.  The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.  To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt.  The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010.  As previously announced, the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009.  The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets.  The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.

Led by a 9.1% increase in gasoline prices, the Consumer Price Index rose 0.4% in August and followed no change in July, according to the Labor Department. The core CPI, which excludes volatile energy and food prices, increased 0.1% in August, the same level as July.

"For inflation to be a concern, we’d have to see core rates rising consistently above 0.2% each month and wages start to rise," PNC analyst Robert Dye was quoted on CNNMoney. "The labor markets are far from healed enough for that to happen."

The latest data also helps to ease concerns of rising inflation due to recent government spending and the Federal Reserve monetary policy of injecting cash into the US economy in a continuing effort to stimulate a recovery.

"What we’re seeing is a gradual disinflation that reflects the persistent slack in our economy," Richard DeKaser, chief economist at Woodley Park Research in Washington, who accurately forecast the monthly increase in overall prices, was quoted on Bloomberg. "This is providing the Fed with lots of patience in reversing monetary policy."

The latest data also reinforces comments from former Fed Chairman Alan Greenspan, who spoke Tuesday from Washington.

"We’ve got worldwide disinflation in train and it will continue for a short while," he said. "Our model says that by the early months of next year the rate of inflation will fall below 1 percent on an annual rate" before starting to climb.

The Labor Department data also shows that annual inflation has fallen 1.5%. That compares to the 2.1% decline in the 12 months ending in July, which also marked the sharpest annual drop since 1950.

Core annual inflation rose 1.4%, registering the smallest year-over-year gain since February 2004. The figure is well within the Federal Reserve’s traditional comfort 1%-2% range. The core annual rate climbed 1.5% in July.

Consumer price details

Rising August prices include:

• Medical care rose 0.3% after a 0.2% increase in July
• Energy prices climbed 4.6% after a 0.4% decline in July and a 7.4% increase in June
• Gasoline prices soared 9.1% following a 0.8% decline
• Housing prices, which accounts for about a third of the CPI index, rose 0.1% after July’s 0.2% increase
• Lodging away from home prices rose 0.5% after falling 2.1% in July
• Meats, poultry, fish and egg prices rose 0.4% following 1.3% decline in July
• Used car and truck prices rose 1.9% following an unchanged reading in July after rising 0.9% in June and 1.0% in May.
• Airfares climbed 1.7% following a 2.1% gain in July
• Natural gas prices increased 0.4% after a 0.9% increase in July and a 1.3% gain in June
• Public transportation prices jumped 1.3% after rising 0.2% in July

Declining August prices include:

• Electricity costs declined 0.1% following a 0.6% decline in July
• Prices for fruits and vegetables fell 0.7% following a 0.3% decline in July
• Dairy and related products dropped 0.4%, its ninth consecutive decline
• New vehicles prices declined 1.3% after a 0.5% increase in July, a 0.7% up tick in June, a 0.5% gain in May, and a 0.4 % increase in April
• Clothing prices fell 0.1% after rising 0.6% in July

Rent costs were unchanged for the second straight month after an increase of 0.1% in June.

On Tuesday, the Labor Department released the Producer Price Index, which measures prices at the factory door and inflation pressures before they reach the consumer. The PPI showed a 1.7% rise in August, but discounting volatile food and energy prices, the core reading rose just 0.2%.

The Labor Department said the Consumer Price Index (CPI) remained unchanged in April after decreasing 0.1% in March. However, a reduction in the cost of energy over the past 12 months helped drive the annual rate 0.7% lower, marking the second straight monthly dip and the biggest decline since August 1955.

"The era of U.S. consumer price deflation is now upon us as the ongoing economic recession and deteriorating labor market conditions continue to weaken the bargaining power of retailers and laborers alike, thereby quenching the once raging inflationary flames," Millan Mulraine, economics strategist for TD Securities, was quoted on Forbes.com

There is a debate raging between economists on whether a threat to the approaching economy is rising inflation or spiraling, out of control falling prices, known as deflation.

"It’s impossible to see how deflation can persist given the amount of liquidity in the system," Maxwell Clarke, chief U.S. economist at 4Cast.com in New York, was quoted on Bloomberg Thursday when the government reported an increase in producer prices. "With oil moving back up, the thought in people’s minds becomes that inflation could ultimately become a problem that outweighs deflation."

Federal Reserve Chairman Ben Bernanke believes the danger of deflation is "receding," recently commenting on the Fed’s monetary policy.

"We are currently of course being very aggressive because we are trying to avoid another form of price instability, which is deflation," Bernanke said at a conference in Jekyll Island, Georgia, on May 11. "We are also committed to removing accommodation in a timely way to ensure that, as we come out of this episode and we move to a sustainable recovery, that we will have price stability, low and stable inflation, going forward."

The CPI is a key government gauge for inflation. The core CPI, which excludes volatile food and energy prices, is even more closely watched. It rose by 0.3% in April following three monthly gains of 0.2%. However, 40 percent of the April increase came from a huge 9.3% rise in tobacco prices due to higher federal taxes.

The core CPI is up 1.9% over the past year. That is within the Federal Reserve’s traditional comfort 1%-2% range.

Consumer price details

Rising April prices include:

• Tobacco and smoking products rose 9.3% after a 11% jump in March
• New vehicles prices rose 0.4 % after a climb of 0.6% March and following a 0.8% increase in February
• Medical care rose 0.4% in April after a 0.2% increase in March
• Education and communication prices gained 0.3% after 0.2% increases for two straight months

Declining April prices include:

• Food and beverage prices fell 0.2% after two straight months of 0.1% declines
• Energy costs fell 2.4%. Prices had declined 3.0% in March and rose 3.3% in February
• Gasoline prices fell 2.8%. Natural gas prices fell 7%.
• Housing prices, which accounts for about 40% of the CPI index, declined 0.1% for the second straight month
• Clothing prices dropped 0.2% following the same decline in March and 1.3% surge in February — the biggest increase in nearly 20 years
• Airfares declined 1.5% after a 2.3% drop in the prior month
• Used car and truck prices fell just 0.1% after two consecutive months of 1.7% declines

In a separate report Thursday, the Labor Department said Producer price rose 0.3% in April. A companion-like report to the CPI, the PPI measures prices at the factory door and inflation pressures before they reach the consumer.

In a statement following the conclusion of its two-day policy meeting, the Federal Open Market Committee (FOMC) said it would:

• Increase its purchases of mortgage-backed securities by $750 billion, on top of the already announced $500 billion
• Buy $300 billion of long-term Treasurys over the next six months

The Fed hopes the first measure will pull down mortgage rates and the second will help ease the credit crunch. Immediately following the news, U.S. stocks rallied, bond prices surged and gold prices reversed direction.

"The Fed is printing money to buy government debt, Tom Hartmann, a commodity analyst at AltaVest Worldwide Trading Inc. in Mission Viejo, California, was quoted on Bloomberg. "This stokes fears of inflation again — why we’re seeing gold take off."

The Federal Reserve slashed its benchmark interest rate to between 0% and 0.25% in December, and decided to maintain the same range.

The following FOMC statement was released:

Information received since the Federal Open Market Committee met in January indicates that the economy continues to contract.  Job losses, declining equity and housing wealth, and tight credit conditions have weighed on consumer sentiment and spending.  Weaker sales prospects and difficulties in obtaining credit have led businesses to cut back on inventories and fixed investment.  U.S. exports have slumped as a number of major trading partners have also fallen into recession. 

Although the near-term economic outlook is weak, the Committee anticipates that policy actions to stabilize financial markets and institutions, together with fiscal and monetary stimulus, will contribute to a gradual resumption of sustainable economic growth.

In light of increasing economic slack here and abroad, the Committee expects that inflation will remain subdued.  Moreover, the Committee sees some risk that inflation could persist for a time below rates that best foster economic growth and price stability in the longer term.

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability.  The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. 

To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion.  Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months. 

The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets.  The Committee will continue to carefully monitor the size and composition of the Federal Reserve’s balance sheet in light of evolving financial and economic developments.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen. 

Also in the news on Wednesday, the Labor Department reported an increase in inflation with consumer prices rising 0.4% in February.

The committee also noted their outlook had significant "downside risks," and provided a set of informal long-term economic projections, including that of inflation at 1.7% to 2%. After the meeting, the FOMC held the federal funds rate to a range of between 0 to 0.25%, as it first set in December, and concluded low interest rate levels would need to be kept for some time.

The released minutes make it clearer, however, how some members see the potential for excessive disinflation in 2009, or a deflation risk as St. Louis Fed’s Bullard addressed in a speech Tuesday. Deflation is a persistent decrease in general prices, or the opposite of inflation.

"Many participants noted some risk of a protracted period of excessively low inflation, especially if inflation expectations were to move down in response to lower actual inflation and increasing economic slack, and a few even saw some risk of deflation."

On the flip side, some members noted a risk that inflation could go the other way.

"Some [committee members] noted a risk that expected inflation might actually increase to an undesirably high level if the public does not understand that the Federal Reserve’s liquidity facilities will be wound down and its balance sheet will shrink as economic and financial conditions improve."

The minutes also revealed forecasts and long-term economic projections by Federal Reserve Governors and Reserve Bank presidents. Notable "informal" central tendency figures follow:

January Economic Projections:

In contrast, the projections made in October were less pessimistic (long-term figures not reported).

October Economic Projections:

FOMC’s next scheduled meeting is set for March 17-18.

"Expectations of deflation for the next five years may feed into real interest rates, driving real rates higher just at the time monetary policy would like to move them lower."

Deflation is a persistent decrease in general prices, or the opposite of inflation. Falling prices may seem like good news for consumers, but only to a certain point. If prices mark sustained deflationary levels that strike below the cost to produce goods and services, further economic turmoil can ensue with production cuts, payroll reductions and deepening unemployment. Deflation can intensify debt by making it more expensive, cripple equity and widen home foreclosures.

Bullard addressed the New York Association For Business Economics where he said the recession would likely continue at least to the first half of 2009, and that there is a risk for sustained disinflation and a possible deflationary cycle similar to what the Japanese experienced after 1990.

Bullard noted that the most recent statistics already confirm core inflation is running near zero to slightly negative, and when coupled with the global recession,

"Suggests that there is a risk that core prices may continue to stagnate or decline slightly for some time to come," Bullard said.

"Should lingering financial turmoil continue to weigh on the economy and stretch the recession out still longer, the zero or negative inflation could continue through 2009. Over that time frame, deflationary expectations could become entrenched," Bullard warned.

Lowering interest rates is the typical vehicle used by the Fed to stir inflation and combat deflation. However, the Fed cut rates to 0-0.25% in December to help spur the economy — which is not yet spurred — taking any rate adjustment virtually out of a deflation fix formula.

Bullard suggests an approach he would not take in "normal times" and one undertaken in October 1979 by Fed Chairman Paul Volcker is now viable. Bullard said the Fed should set quantitative targets for monetary policy, beginning with the growth rate of the monetary base. Or in clearer terms, create more money.

At the conclusion of its historic meeting, the Federal Open Market Committee (FOMC) slashed rates to a record low of between zero and 0.25%. The minutes, which provide much more detail and are always released several weeks after the official meeting, cite specific expectations reaching into 2009 and 2010.

Perhaps most telling is the following statements within the minutes:

"Amid the weaker outlook for economic activity over the next year, the unemployment rate was likely to rise significantly into 2010, to a level higher than projected at the time of the October 28-29 FOMC meeting."

In terms of the direction for inflation, Fed forecasts show continual declines.

"The disinflationary effects of increased slack in resource utilization, diminished pressures from energy and materials prices, declines in import prices, and further moderate reductions in inflation expectations caused the staff to reduce its forecast for both core and overall PCE inflation. Core inflation was projected to slow considerably in 2009 and then to edge down further in 2010."

Some members in the meeting noted that current conditions could improve consumer savings, but that fact could also result in a deepened economic drag.

"Many participants noted that the decline in household wealth resulting from large drops in equity and house prices, together with tighter credit conditions, rapidly increasing unemployment, and deteriorating consumer sentiment, was contributing to a sharp contraction in consumer spending. Some participants pointed out that reduced consumer wealth and concerns about employment could lead to a further increase in saving, which, although desirable in the longer term, could put additional downward pressure on consumer spending in coming quarters."

The minutes also indicate global demand for U.S. products is not expected to improve near term, but the global economic slump should help keep energy prices lower, and improve consumer income and spending.

"Meeting participants noted that economic conditions had deteriorated substantially in recent months in both advanced and emerging market economies. As a consequence, demand for U.S. exports had weakened, held back also by the strengthening of the dollar since the summer. Going forward, global demand was expected to remain weak, and thus growth in exports was unlikely to provide much support for U.S. activity. However, the weakness in the global economy was contributing to lower prices of energy and other commodities, which should boost real incomes and provide modest support to household spending."

The FOMC’s next scheduled meeting is set for January 27-28.

Slashing the overnight lending rate by such a degree was an unexpected Fed move. Most everyone had expected a 0.5% cut from its prior 1%. The rate is now at its lowest level since the government started keeping records in 1954.

"It’s a highly unorthodox and creative step," Michael Woolfolk, senior currency strategist, at the Bank of New York-Mellon in New York told Reuters. "We think it’s the best possible move for the U.S. consumer and for the financial market."

The announcement was made by the Federal Open Market Committee (FOMC), who released the following statement:

The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent. 

Since the Committee’s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined.  Financial markets remain quite strained and credit conditions tight.  Overall, the outlook for economic activity has weakened further.

Meanwhile, inflationary pressures have diminished appreciably.  In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters.

The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability.  In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time. 

The focus of the Committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level.  As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant.  The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities.  Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses.  The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. (Unanimous.)

The fed funds rate is used to set rates for a wide variety of consumer loans, including home equity lines, credit cards and many business loans.

Low rates can feed inflation, which the U.S. was battling in July when inflation had grown at its fastest pace in 17 years. However, with drastically falling energy prices, inflationary pressures have greatly eased with consumer prices falling a record 1.7%, according to Tuesday’s report by the Labor Department.

The FOMC’s next scheduled meeting is set for January 27-28.