WASHINGTON - THE US Federal Reserve on Wednesday maintained its near-zero interest rate policy and pledged to use 'all available tools' to lift the economy out of a deep recession.

Yet the bank headed by Fed chairman Ben Bernanke stopped short of launching any new initiatives, saying it would consider a plan to buy up Treasury securities if the action is seen as helping ease a crippling credit crunch.

Concluding a two-day meeting, the central bank's Federal Open Market Committee (FOMC) kept its target range for the federal funds rate at zero to 0.25 per cent agreed last month and said its expected 'exceptionally' low rates 'for some time.'

The FOMC vote was 8-1, with Richmond Fed president Jeffrey Lacker indicating his preference for 'purchasing US Treasury securities' instead of using targeted credit programs to revive lending.

The statement by the FOMC said the Fed 'will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability.'

The Fed, which has embarked on a major program to buy mortgage securities, said it was 'ready to expand the quantity of such purchases' and 'is prepared to purchase longer-term Treasury securities' if it will help revive credit.

The statement appeared to stop short of an outright move toward what is known as 'quantitative easing,' or the massive purchase of Treasury obligations in an effort to bring down borrowing costs that are not linked to the federal funds rate.

But the Fed said clearly it was prepared to take such a move if circumstances warrant.

Economist Scott Anderson at Wells Fargo said some investors were disappointed by the Fed.

'The bond market was hoping for an actual announcement of the plan and I don't think they are there yet,' he said.

'They are further along, but they want to pick the right time ... if they telegraph their actions completely they would lose a bit of the bang for the buck.'

Mr Anderson said some FOMC members may be cautious about the notion 'of trading government IOUs for Fed IOUs.'

The risk, said Mr Anderson, is that 'the market could determine that the emperor has no clothes, and you could see a spike in interest rates and a collapse in the dollar.' John Ryding at RDQ Economics added that 'perhaps Lacker's dissent favouring immediate purchases hints that no such purchases are imminent.'

As the FOMC members met, the International Monetary Fund slashed its outlook for the US economy, predicting a 1.6 per cent contraction in 2009, amid a deepening global crisis.

Official US data to be released on Friday will show US economic activity in the fourth quarter of 2008, expected to reveal a horrific drop of 5.4 per cent annualised.

The FOMC statement said data since last month 'suggests that the economy has weakened further' with hefty declines in output, housing and employment, 'as consumers and businesses have cut back spending.' The statement said that some financial conditions have improved but that 'credit conditions for households and firms remain extremely tight.'

The committee said it 'anticipates that a gradual recovery in economic activity will begin later this year, but the downside risks to that outlook are significant.'

Cary Leahey, senior economist at Decision Economics, said the Fed 'did not follow up aggressively' on its actions from last month, which included a bold cut in its lending rate to virtually zero.

He said that with US lawmakers considering a big economic stimulus plan and the administration of President Barack Obama eyeing plans to help stabilise the banking system, the FOMC was likely involved 'but they can't talk about it.' -- AFP