Fed keeps interest rates on hold

The Fed said action already taken should help boost economic activity

The US Federal Reserve has kept interest rates on hold at its current range of between zero and 0.25%, and suggested the recession may be easing.

It also said it would continue its present level of purchasing long-term government debt to expand money supply.

The economy is still contracting, but the pace of contraction appears to be "somewhat slower", the Fed said.

Earlier, official data showed GDP fell 6.1% in the first three months of 2009, led by a sharp fall in exports.

Last month the central bank announced a $1.2 trillion (£843bn) programme of buying government debt to boost lending and promote economic recovery - a policy known as quantitative easing.

Although the economic outlook had "improved modestly" since its March meeting, economic activity is "likely to remain weak for a time", the Fed said.

The bank added that it expected inflation to remain subdued.

Analysts noted the optimistic tone of the meeting but said the Fed should leave the door open to further action if needed.

"The recession is still with us, the Fed still needs to be vigilant and to pull out all the stops and to provide all the liquidity that they can," said Mark Vitner, economist at Wachovia Securities.

"The economy has gone from being in a freefall and is now on the road to recovery."