- The Washington Times - Tuesday, September 16, 2003

ASSOCIATED PRESS

The Federal Reserve kept a key interest rate at a 45-year low yesterday and repeated its pledge to keep rates at rock-bottom levels for a “considerable period.”

Many analysts predicted that the Fed will keep rates at the current level for as long as a year, in part because of lingering worries that inflation has fallen to such low levels that the bigger risk right now is a destabilizing fall in prices.

The Fed last changed rates in June when it pushed its target for the federal funds rate, the interest that banks charge each other on overnight loans, down by a quarter-point to 1 percent. It was the Fed’s 13th rate cut since early 2000 and brought its key policy lever to the lowest level since July 1958.



At the following meeting on Aug. 12, the Fed left rates unchanged, but said for the first time that it was prepared to leave rates at low levels “for a considerable period,” language it repeated in yesterday’s statement.

Analysts said the central bank was correcting botched signals earlier this year when Fed worries about deflation misled bond investors into thinking the central bank was prepared to cut rates even faster and to employ unconventional methods, such as direct purchases of long-term bonds, in an effort to raise rates.

Treasury’s benchmark 10-year note fell to a more than four-decade low of 3.1 percent in mid-June before jumping to 4.6 percent in August, raising concerns that a too-rapid rise in long-term rates could abort the current recovery.

However, the central bank’s assurances in August and this month that it will keep rates low for a considerable period seemed to be convincing bond traders. In recent days, the 10-year Treasury note has retreated and is trading below 4.3 percent.

The central bank specifically stated yesterday that it was concerned about recent “weakening” in the labor market.

Businesses cut payrolls for a seventh consecutive month in August, bringing total job losses to nearly a half-million. For the last two weeks, initial claims for unemployment benefits have climbed back above the 400,000 mark.

President Bush, who will be running for re-election next year, pushed through a third round of tax cuts this summer in an effort to counter Democratic attacks that his record on job growth is the worst of any president since Herbert Hoover.

By specifically mentioning the poor jobs performance, the central bank is sending a message that it too is worried about the economy’s inability to generate strong enough growth to put a dent in unemployment, analysts said.

Sign up for Daily Newsletters

Manage Newsletters

Copyright © 2020 The Washington Times, LLC. Click here for reprint permission.

Please read our comment policy before commenting.

 

Click to Read More and View Comments

Click to Hide