US Fed keeps key rate at 45-year low, hinting future increase

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Last updated at: (Beijing Time) Thursday, January 29, 2004

US Fed keeps key rate at 45-year low, hinting future increase

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The US Federal Reserve, faced with mixed signals on growth and fresh evidence the economy is failing to create new jobs, decided Wednesday to keep a key short-term interest rate unchanged at a 45-year low.

Meeting for the first time in the new year, Fed Chairman Alan Greenspan and his colleagues left the overnight federal funds rateat 1 percent as widely expected.

The federal funds rate is the Fed's primary tool for influencing the economy. To leave it unchanged means a host of related consumer and business lending rates also will remain unchanged, including the prime rate.

The Fed lowered the funds rate to its current 1 percent level in June.

While keeping the key federal funds rate at its current level, the central bank hinted that it might raise the rate in the future.

In a statement issued at the close of a two-day meeting, the Federal Open Market Committee (FOMC), the decision-making body of the central bank, abandoned a pledge it has repeated since August to keep rates low for a "considerable period."

"With inflation quite low and resource use slack, the committee believes that it can be patient in removing its policy accommodation," the FOMC statement said.

Analysts said the language suggested that the Feb was trying to prepare the market for higher interest rates in the future, but they said a rate hike is not imminent.

The Fed said that since its last meeting in December, economic reports confirm that "output is expanding briskly." It also said:"Although new hiring remains subdued, other indicators suggest an improvement in the labor market. Increases in core consumer pricesare muted and expected to remain low."

The US economy enjoyed its best growth in nearly 20 years in the third quarter, with a booming 8.2-percent rate, and carried that momentum forward into the fourth quarter.

Yet the economy added a scant 1,000 jobs last month, far short of the 150,000 expected by many analysts, raising concerns about the fragile state of the labor market.

Against this backdrop, some analysts expect the Feb to begin raising rates by August while others believe the current short-term rates would remain unchanged well into 2005.

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