Golds went from bright green to dark red about this time..
[what a joke.. pb]
Fed holds key short-term rate steady at 45-year low
By JEANNINE AVERSA
Associated Press Writer
ajc.com
WASHINGTON -- The Federal Reserve, not wanting to upset the economic recovery, held a main short-term interest rate at a 45-year low Wednesday.
Wrapping up a two-day meeting -- the first regularly scheduled session of the year -- Fed Chairman Alan Greenspan and his colleagues left the federal funds rate unchanged at 1 percent. The funds rate, the interest that banks charge each other on overnight loans, is the Fed's primary tool for influencing the economy. The Fed lowered the funds rate to its current 1 percent level in June and the rate hasn't budged since then.
However, the Fed used some new language in its statement Wednesday, saying "with inflation quite low ... the committee believes that it can be patient in removing its policy accommodation."
That's different wording from previous statements when the Fed said that it had leeway to keep short-term rates low for a "considerable period" -- a phrase that it had been using since August.
The Fed said that since its last meeting in December, economic reports suggest that the economy is "expanding briskly." It added that "although new hiring remains subdued, other indicators suggest an improvement in the labor market."
The Fed's decision to leave the funds rate alone means commercial banks' prime lending rate for many short-term consumer and business loans remains at 4 percent, the lowest level in more than four decades.
An environment of super-low short-term borrowing costs may give consumers and businesses an incentive to spend and invest more, boosting economic growth.
Despite improvements in the national economy, jobseekers still find it difficult to get work and businesses aren't yet firing on all cylinders.
The nation's payrolls grew by a minuscule 1,000 in December, raising new concerns about the fragile state of the labor market. The unemployment rate dipped to 5.7 percent, but that was mainly because thousands of prospective workers gave up looking.
The economy has lost 2.3 million jobs since President Bush took office in January 2001. The president believes a stronger economy will lead to more jobs. Democrats point to the job losses as evidence of what they say are the president's failed economic policies.
Analysts are hopeful that stronger job growth will take place later this year as businesses feel more confident in the economy and see their bottom lines improve.
Against this backdrop, some economists predict the Fed will leave rates alone throughout this year and into 2005. That would be good news for America's borrowers and consumer-sensitive industries such as housing. New-home sales set a record high for all of 2003, the government reported Wednesday.
Low rates also have put downward pressure on the value of the U.S. dollar compared with other currencies. That's been a welcome development for U.S. manufacturers because it makes their goods less expensive for foreigners to buy -- something that has helped to boost U.S. exports in recent months.
Orders for costly manufactured goods in 2003 posted the largest gain in three years, although activity in November and December disappointed economists.
Others, however, believe the Fed will begin to nudge up rates later this year. Some predict the first rate increase could come as early as June. The last time the Fed raised rates was May 2000, when the economy was enjoying a record expansion.
The economy fell into recession in 2001, struggled to get out and finally perked up in the second half of last year.
In the third quarter of 2003, the economy grew at blistering 8.2 percent rate --the strongest performance in nearly two decades. Economists believe economic growth slowed to a rate of around 4 percent to 5 percent in the final quarter of last year, which would still be brisk. The government on Friday will release its first estimate of economic growth for the fourth quarter.
Economic growth in the current quarter is projected to be solid -- at a rate of just over 4 percent, economists said. |
