Interest rates to stay at 1 percent
By Barbara Hagenbaugh
USA Today
WASHINGTON — Citing a sluggish job market, Federal Reserve officials yesterday left interest rates at rock-bottom levels and continued to stress they were in no hurry to raise rates.
Fed Chairman Alan Greenspan and his fellow policy-makers unanimously voted to keep their target for short-term interest rates — which influence borrowing costs economywide — at 1 percent, a 45-year low reached in June.
Federal Reserve Chairman Alan Greenspan will keep interest rates at a 45-year low.
They said the economy is growing "at a solid pace," but their assessment of the job market was more muted than at their meeting at the end of January.
"Although job losses have slowed, new hiring has lagged," the Fed officials said in their post-meeting statement.
With inflation the lowest in four decades, Fed officials said they could "be patient" before raising rates. For consumers, it means low borrowing costs aren't going away any time soon.
"There's no reason why they can't be patient," FleetBoston Financial chief economist Wayne Ayers says of the Fed. "Inflation is low; the job market is weak. There's no need for pre-emption."
U.S. financial markets seesawed after the widely expected decision, in part as investors digested the Fed's more negative view about jobs. But the Dow ended the day up 81.78 points at 10,184.67.
The yield on the 10-year Treasury note fell to 3.69 percent from 3.77 percent as investors put off their expectations for Fed action.
Most economists are predicting the Fed will leave rates unchanged until late summer and perhaps through 2004.
Investors who bet on upcoming Fed moves expect the first jump at the Fed's November meeting, which occurs a week after the presidential election, according to consulting firm Economy.com.
Supporting the view that rate increases are a ways off, the Fed said the chances of falling prices were about equal to the chances of rising prices.
Until there are clear signs that inflation is picking up and the job market is solidly improving, U.S. central bankers will want to continue to stimulate the economy.
"The Fed will wait until payroll growth picks up — period, end of story," said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Conn.
Last month, the economy created 21,000 jobs, a fraction of what is needed to get the job market on solid footing.
"Until we start seeing 100,000, 200,000 monthly postings in jobs, I don't see how the Fed can legitimately tap on the breaks with higher rates," says Rich Yamarone, director of economic research at Argus Research in New York.
Bloomberg News Service contributed to this report.
