Patient Fed holds key US rate at 1%

  • Business
  • Thursday, 18 Mar 2004

WASHINGTON: The US Federal Reserve has decided to hold interest rates at 1958 lows and signalled it was in no hurry to raise borrowing costs with job creation still sluggish and inflation tame. 

The unanimous decision by the policy-making Federal Open Market Committee (FOMC) on Tuesday kept the trend-setting federal funds rate for overnight loans between banks at 1%, a level hit after a cut last June. 

The FOMC sounded more cautious about prospects for strong job growth, so far a missing ingredient in the US recovery from the 2001 recession, and one that is taking on a growing profile ahead of the November presidential elections. 

“Although job losses have slowed, new hiring has lagged,” the committee said. 

The Fed repeated that risks of a fall in inflation were “almost equal” to that of a climb in consumer prices, and chances of a pick-up in growth and a downturn were “roughly” balanced. 

The FOMC also reiterated it could afford to be “patient” about raising rates, implying that policy-makers feel scant pressure to boost credit costs despite a strengthening economy because inflation remains muted and job growth is anaemic. 

The latest FOMC statement was highly similar to the one issued after its last meeting on Jan 28, but slightly more downbeat. 

“The evidence accumulated over the inter-meeting period (since late January) indicates that output is continuing to expand at a solid pace,” the Fed said, in contrast to January, when it said output was growing “briskly”. 

Analysts said the Fed was making the point that it would stay the course with easy monetary policy until a persuasive economic upturn was in place, possibly maintaining current rates through 2004. 

A poll by Reuters of 20 Wall Street analysts after the FOMC decision found a growing certainty that any rate rises are months in the future. No respondent foresaw a rate rise at the next scheduled FOMC meeting on May 4, and 10 said they now felt no change in rates would occur before 2005. – Reuters

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