Fed says "prolonged period" could be long

WASHINGTON (Reuters) - The U.S. Federal Reserve could keep interest rates at extremely low levels for longer than investors believe, if the worsening outlook for the economy or inflation subsides, the minutes showed on Tuesday the meeting Fed in March.

The minutes of the meeting of March 16 showed that there were still concerns about the outlook for the U.S. economy, and central bank officials were in no hurry to raise interest rates.

In fact, monetary policy makers felt that the promise of maintaining low interest rates would not limit the central bank if he felt the need to tighten monetary conditions.

"The duration of the commitment of a long period prior to a tightening of policy could be maintained for some time and could even be extended if the economic picture worsens considerably," say the minutes of the bank.

"These guidelines do not limit the future ability of the Committee to initiate a prompt monetary tightening," added the minutes of previous meeting.

At its meeting in mid-March, the Fed kept the benchmark interest rate steady at a range from zero to 0.25 percent and reiterated its commitment to keep them low.

The president of the Kansas City Fed, Thomas Hoenig, again objected to retain the phrase the "long period", promoting a more flexible commitment to keep interest rates low "for some time."

At a general level, the assessment of economic conditions made by the Fed was pessimistic. The members of the organization expressed concern about the resurgence of the problems in the housing market and persistently high unemployment.

Officials considered a threat to consumer spending by the vicious circle generated by the weak labor market.

"Participants agreed that household spending in the future is likely to remain constrained by weak labor market conditions, lower housing wealth derived from the harsh conditions of credit, and the modest revenue growth," the minutes said.

The Fed defined as controlled inflationary pressures and will probably remain that way, "pointing out that expectations about the price increases were" reasonably "well anchored.

Some Fed members said they thought the risk of tightening monetary policy too soon was greater than the risk of waiting too long to do so. These members felt that the pace of monetary tightening could be accelerated if necessary, and that the Fed had little room for further easing of monetary conditions.

(Reporting by Pedro da Costa and Glenn Somerville)