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Fed Holds Interest Rates at 45-Year Lows

December 9, 2003
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WASHINGTON (Reuters) - The U.S. Federal Reserve held interest rates at 45-year lows on Tuesday as policy-makers renewed a vow to keep borrowing costs down for a long time while still saying the threat of falling prices had eased.

The rate-setting Federal Open Market Committee said the chance of an unwelcome drop in inflation was now almost equal to the possibility price pressures could pick up.

Policy-makers voted unanimously to hold the federal funds rate charged on overnight loans between banks at 1 percent, the lowest since 1958.

"The probability of an unwelcome fall in inflation has diminished in recent months and now appears almost equal to that of a rise in inflation," the Fed said in a post-meeting statement.

"However, with inflation quite low and resource use slack, the committee believes that policy accommodation can be maintained for a considerable period," it added.

Most recent indicators show the U.S. economy gaining steam after enduring a mild recession in 2001, but at a ragged pace that is not yet generating a healthy rise in hiring.

The government said last week the unemployment rate fell to an eight-month low of 5.9 percent in November but there are still 2.4 million fewer jobs in the United States than before the recession.

At the same time, U.S. industry is operating at only about 75 percent of capacity -- leaving significant slack that must be taken up before there is any risk of the economy overheating and pushing up prices.

With the race accelerating for the November presidential elections, Bush administration officials have been claiming credit for stimulating faster economic activity through tax cuts, while also voicing concern about jobs. Democrats have served notice they intend to attack the Bush administration for presiding over the direst job losses in decades while offering tax cuts slanted to wealthier Americans.

U.S. Treasury Secretary John Snow, in an interview with Reuters on Monday, said the booming 8.2 percent annual rate of growth in gross domestic product in the third quarter may have marked a transition to a more vibrant economy, which will boost job prospects.

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