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Fed: Rates Unchanged, Pledges Patience
By Glenn Somerville
WASHINGTON (Reuters) March 16- The U.S. Federal Reserve
(news - web sites) opted on Tuesday to keep interest rates at 1958
lows and signaled it was in no hurry to raise borrowing costs with
job creation so sluggish and inflation tame.
The unanimous decision by the rate-setting Federal Open Market Committee
(news - web sites) keeps the trendsetting federal funds rate for
overnight loans between banks at 1 percent, a level hit after a
cut last June.
In its post-meeting statement, the U.S. central bank said upside
and downside risks to economic growth were roughly balanced and
repeated that chances of a drop in prices were nearly the same as
an inflation pickup.
The FOMC also repeated 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 anemic.
Bond prices rose on the emphasis on patience while the dollar was
largely unmoved by the news.
"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.
"Although job losses have slowed, new hiring has lagged. Increases
in core consumer prices are muted and expected to remain low,"
it added.
While the economy has clearly gained strength, its failure to generate
more jobs has fired a debate between President Bush (news - web
sites)'s Republicans and Sen. John Kerry (news - web sites), the
certain Democratic nominee, ahead of November's presidential election.
Some 2.2 million nonfarm jobs have been scrubbed from payrolls since
Bush took office in 2001, but administration officials argue he
inherited a recession and faced setbacks like the Sept. 11, 2001,
attacks and corporate scandals.
Kerry has lashed back, calling corporate executives who move jobs
to cheap-labor countries from the United States traitors and urging
a close watch on the move of white-collar and technological work
to China and India.
Just 21,000 U.S. jobs were created in February, well below forecasts
and far short of the roughly 100,000 monthly pace economists feel
is needed to absorb the number of job-seekers.
Fed Chairman Alan Greenspan (news - web sites) -- echoing Bush administration
officials including Treasury Secretary John Snow -- said last week
the job picture should brighten "before long as output continues
to expand."
Greenspan has also emphasized that rates cannot stay low indefinitely,
although many economists see no rate increase coming until well
into this year or even next.
"The federal funds rate is accommodative and at some point
it will have to rise back to a more neutral state, because it is
inconsistent with general long-term stability," the Fed chief
told the Economic Club of New York.
One factor holding hiring down has been huge growth in productivity,
or output per worker, but eventually those gains will wane and force
companies to take on more employees. Some economists caution that
if hiring remains anemic, consumers' ability and willingness to
spend -- the key force behind expansion -- could diminish.
Other recent data show the economy has considerable momentum on
the production side, including a Fed report on Monday that said
U.S. industrial output climbed an unexpectedly robust 0.7 percent
in February while factory operating rates hit their fastest pace
since October 2001.
In the last half of 2003, the economy expanded at the fastest clip
since 1984, posting annual rates of growth of 4.1 percent in the
fourth quarter and 8.2 percent in the third.
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