ICS Magazine

Fed Holds Rates at Record Low

September 16, 2003
WASHINGTON – Sept. 16 (Reuters) - Federal Reserve officials opted on Tuesday to keep U.S. interest rates at 45-year lows, and said rates would stay down for a long time to lift an economy that is losing jobs.

In announcing their unanimous and widely expected decision to leave the benchmark federal funds rate at a 1958 low of 1 percent, policy-makers repeated a warning that already low inflation could move disturbingly lower.

"The risk of inflation becoming undesirably low remains the predominant concern for the foreseeable future," the policy-setting Federal Open Market Committee said. "In these circumstances, the committee believes that policy accommodation can be maintained for a considerable period."

Fed officials are concerned relatively high unemployment and unused production capacity could slow inflation and sap some of the stimulus low rates offer.

Some have argued a stable and positive rate of inflation is the best buffer against the risk of deflation, a persistent and potentially crippling drop in consumer prices.

Numerous signs have emerged suggesting the pace of recovery has quickened appreciably of late, lessening deflation risks, but economists said the Fed was far from expressing glee.

"The biggest surprise was that the tenor of the statement did not change much at all," said Chris Low, chief economist at FTN Financial in New York. "The Fed is making it clear they are not bothered by strong growth and there is no intention of raising rates."

The Fed's announcement matched nearly word-for-word a statement issued after its last meeting in August. However, a month ago they called labor market indicators "mixed." This time they noted the economy was losing jobs.

"It's a touch more dovish," said Henry Wilmore, chief economist at Barclay's Capital in New York.