The US Federal Reserve decided on Wednesday to keep a key interest rate unchanged at 0 to 0.25 percent, and also vowed to use all tools to save the sagging economy.

The Fed continues to anticipate that "economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time," said the US central bank in a statement.

It admitted that information received since the Fed's Open Market Committee met in December suggests that the economy has weakened further.

Industrial production, housing starts, and employment have continued to decline steeply, as consumers and businesses have cutback spending, it warned.

"Furthermore, global demand appears to be slowing significantly," it noted. "Conditions in some financial markets have improved, nevertheless, credit conditions for households and firms remain extremely tight."

The Fed vowed to "employ all available tools" to promote the resumption of sustainable economic growth and to preserve price stability.

The focus of the Fed's policy is to support the functioning of financial markets and stimulate the economy through open market operations and other measures, said the bank.

It pledged to continue to 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 the quantity of such purchases and the duration of the purchase program as conditions warrant.

It is prepared to purchase longer-term Treasury securities if evolving circumstances indicate that such transactions would be particularly effective in improving conditions in private credit markets, according to the statement.

The Federal Reserve will be implementing the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses.

The central bank will continue to "monitor carefully the size and composition of the Federal Reserve's balance sheet" in light of evolving financial market developments.

As to the inflation, the Fed said it expects that inflation pressures will remain subdued in coming quarters due to the declines in the prices of energy and other commodities in recent months and the prospects for considerable economic slack.

Also on Wednesday, the International Monetary Fund forecast the US economy was likely to contract 1.6 percent in 2009, sharply down from its estimate of a 0.7 percent growth issued just two months ago.

The conclusion was partly echoed by the Fed.

A gradual recovery in economic activity will begin later this year, but "the downside risks to that outlook are significant," according to the US central bank.

(Xinhua News Agency January 29, 2009)