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Dollar sinks on suspicions that Japanese intervention may be ending
Patient Fed leaves rates unchanged
By Glenn Somerville
Tuesday, March 16, 2004
WASHINGTON -- The U.S. Federal Reserve 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 keeps the trend-setting 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 quot;patientquot;
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
Bond prices rose on the emphasis on patience while the
dollar was largely unmoved by the news.
quot;The evidence accumulated over the inter-meeting period
(since late January) indicates that output is continuing to
expand at a solid pace,quot; the Fed said.
quot;Although job losses have slowed, new hiring has lagged.
Increases in core consumer prices are muted and expected
to remain low,quot; it added.
While the economy has clearly gained strength, its failure
to generate more jobs has fired a debate between President
Bush's Republicans and Sen. John Kerry, the certain
Democratic nominee, ahead of November's presidential
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
Fed Chairman Alan Greenspan -- echoing Bush administration
officials including Treasury Secretary John Snow -- said last
week the job picture should brighten quot;before long as output
continues to expand.quot;
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.
quot;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,quot; 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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