- The Washington Times - Tuesday, March 16, 2004


The Federal Reserve — keeping a close eye on the unfolding economic recovery — held a main short-term interest rate at a 45-year low yesterday.

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.

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.

That means the Fed will take its time in ordering any possible rate increases, economists said.

The Fed’s unanimous decision to leave the funds rate alone means commercial banks’ prime lending rate for many short-term consumer and business loans remains at 4 percent, the lowest level in more than four decades.

Maintaining a climate of extra-low borrowing costs may give consumers and business an incentive to spend and invest more, lifting economic growth.

Since the last meeting in January, the Fed said that economic activity “is continuing to expand at a solid pace.”

“Although job losses have slowed, new hiring has lagged,” the Fed said in language that was more subdued than in the last statement in January. At that time, the Fed mentioned some improvement in the labor market.

The Fed is staying its monetary policy course “to ensure that the recovery stays on track and that job growth resumes at a faster pace,” said Lynn Reaser, chief economist at Banc of America Capital Management.

The Dow Jones industrial average rose 81.78, or 0.8 percent, to 10,184.67.

Broader stock indicators were modestly higher. The Standard & Poor’s 500 index gained 6.21, or 0.6 percent, to 1,110.70. The technology-heavy Nasdaq Composite Index gained 3.89, or 0.2 percent, to 1,943.09.

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.

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.

In other economic developments, the number of housing projects begun by builders declined for the second straight month in February as bad weather in some parts of the country forced construction delays.

The Commerce Department reported yesterday 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.

Despite the declines, both January and February’s levels of activity were still considered healthy by economists.

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