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The Honolulu Advertiser

Posted at 11:16 a.m., Tuesday, December 10, 2002

Fed leaves interest rates alone

By Jeannine Aversa
Associated Press

WASHINGTON The Federal Reserve left a key interest rate unchanged at a 41-year low today, giving consumers and businesses more time to take advantage of rock-bottom borrowing costs to help the economy snap out of its listless state.

At their last meeting of this year, Fed Chairman Alan Greenspan and his Federal Open Market Committee colleagues opted to hold the federal funds rate steady at 1.25 percent. The funds rate is the interest that banks charge each other on overnight loans and is the Fed's main lever for influencing the economy.

The vote was 12-0.

The Fed, in its statement, said that currently low rates are "providing important ongoing support to economic activity." The "limited number of incoming economic indicators since the November meeting, taken together, are not inconsistent with the economy working its way through its current soft spot," the Fed added.

The Fed's first rate cut this year and the 12th since January 2001 came at the central bank's previous meeting, Nov. 6. That bold, half-point reduction pushed the funds rate down to 1.25 percent, a 41-year low. In response, some commercial banks lowered their prime lending rate by a similar half-point to 4.25 percent, the lowest rate since May 1959.

The Fed's decision comes amid a stagnant job market, a bumpy stock market and an overhaul of President Bush's economic team. That shakeup is designed to control political damage from the sputtering economy, a sore spot for the president as he gears up for re-election in 2004.

Leaving borrowing costs low might motivate consumers the economy's lifeblood to keep spending and might encourage businesses to increase investment, economists say.

That would provide a helping hand to an economy that analysts believe will grow tepidly this quarter and in the first quarter of 2003 but will not slide into a new recession.