Fed Stands Pat On Rates

Federal Reserve Bank and seal
The Federal Reserve held a main short-term interest rate at a 45-year low Tuesday, noting improved economic growth by lagging job creation.

Fed Chairman Alan Greenspan and his colleagues left the federal funds rate unchanged at 1 percent, where it has been since June. The funds rate is the interest that banks charge each other on overnight loans and is the Fed's primary tool for influencing economic activity.

In its announcement, the Fed's Open Market Policy Committee said the economy was "continuing to expand at a solid pace."

"Although job losses have slowed, new hiring has lagged. Increases in core consumer prices are muted and expected to remain low," the statement read. "The Committee perceives the upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal."

That echoed the Fed's analysis over the past few months.

With inflation low, the Fed has leeway to hold rates at extra-low levels. "The committee believes it can be patient in removing its policy accommodation," the Fed said in language first used at its last meeting in January.

The Fed's decision comes as job growth remains slow despite an economic rebound.

The economy, after struggling to get back on its feet after the 2001 recession and terrorist attacks, finally snapped out of a funk in the second half of last year, growing at its strongest pace since early 1984. The economy is expected to grow at a healthy rate of more than 4.5 percent in the first half of this year, economists predict.

But the economy added a paltry 21,000 jobs last month — all of them in government. Private payrolls were flat. There were some 8.2 million people unemployed in February, with the average duration of 20.3 weeks without work. That marked the highest average duration of joblessness in over 20 years.

Different sectors of the economy continued to give mixed messages of where growth is headed,

The Commerce Department reported Tuesday that the number of residential buildings under way fell to a seasonally adjusted annual rate of 1.86 million units in February, representing a 4 percent decrease from the previous month.

Although economists were forecasting a rise in residential construction in February, the level of housing projects in January turned out to be higher — a rate of 1.93 million units started — than first thought, according to revised figures. That made for a smaller decline in activity than reported a month ago.

Even with the declines, both January and February's levels of activity were still considered healthy, economists said.

The Federal Reserve reported Monday that big industry production rose by a strong 0.7 percent in February, an encouraging sign that the nation's manufacturers may be getting a stronger grip on their own recovery.

But the labor market remains the focus of concern. Greenspan said last week that "employment will begin to increase more quickly before long," and that erecting protective trade barriers was not the answer to the nation's current worries about the loss of jobs to foreign competition.

Since President Bush took office in January 2001, the economy has lost 2.2 million jobs. This loss of jobs — including those that have moved overseas — is a major issue in the presidential campaign.

Presumptive Democratic presidential nominee John Kerry points to the lackluster job growth as evidence that Mr. Bush's economic policies aren't working. Mr. Bush, meanwhile, has called on Congress to make his tax cuts permanent to create new jobs.

Some economists believe the Fed will keep rates at super low levels through this year and into 2005. They worry that if the jobs market doesn't turn around soon, consumers could turn cautious, raising the risk of an economic slowdown in the second half of this year.

Yet, others — hopeful that job growth will pick up — continue to believe that the Fed may raise rates later this year, perhaps after the elections, at the central bank's Nov. 10 or Dec. 14 meetings.

The federal funds rate is the basis for other interest rates that consumers receive on savings accounts and pay on mortgages and credit card debt. The Fed changes the rate by buying or selling government bonds.

A lower interest rate makes borrowing cheaper, encouraging companies to invest and consumers to spend.