Low US interest rates can last until late summer: economists
WASHINGTON - Economists cited turbulence on Wall Street over rising worries about a war with Iraq as a primary reason for why they think the Federal Reserve will leave interest rates at a 41-year low.
The Fed's top policy-making group, the Federal Open Market Committee, will hold a two-day meeting today and tomorrow to decide what it should do about interest rates. For more than a year, the central bank has kept those rates at the lowest levels since the early 1960s.
In advance of this week's discussions, most economists were expecting no change in the federal funds rate, the interest that banks charge on overnight loans. The Fed pushed that rate down by a half-point to 1.25 percent on Nov. 6.
'It's almost a slam dunk that the Fed will leave rates unchanged,' said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh. 'I think the evidence is not conclusive that we have gotten past the soft spot.'
Federal Reserve Chairman Alan Greenspan and other Fed officials have used the phrase 'soft spot,' to describe a renewed period of economic weakness that many analysts believe pushed overall growth down to an anemic rate of 1 per cent or less in the final three months of 2002.
The Fed's bigger-than-expected half point rate reduction in November was an effort to make sure the slowdown did not deepen into something worse, such as a double-dip recession.
The unemployment rate has risen in recent months, returning to an eight-year high of 6 per cent. To get the uncertain recovery from the 2001 recession back on a more sustainable path, the Bush administration promoted a new economic stimulus package.
President George W Bush's US$674 billion (S$1.2 trillion), 10-year plan faces opposition from congressional Democrats. Mr Greenspan provided key support in the 2001 passage of Bush's first tax cut, a US$1.35 trillion, 10-year package, but it was unclear how much backing the Fed chief will give the new measure.
Fed spokesman David Skidmore said it was the practice of the central bank not to comment on Mr Greenspan's private meetings. But he said that Mr Greenspan's 'long-standing' support for the elimination of the double taxation of stock dividends, the centrepiece of the Bush proposal, was a matter of record. |
