|Fed Says Hold-Em|
|Key Words||Recession, Inflation, Economic Growth|
The Federal Reserve's Open Market Committee, the Fed's policy-making
group, voted to hold interest rates at present levels at their March meeting.
Fed officials noted that the economy "is expanding at a significant
pace." A recovery is well underway, the Committee noted, and further
interest rate cuts are unlikely. What will happen to economic growth later
this year "is still uncertain", according to the Fed's forecast.
Barring a dramatic change in the economic outlook or financial conditions, the Fed believes in changing course gradually in order to avoid destabilizing financial markets. By shifting its focus away from the risks of recession, the FOMC statement was giving financial markets a warning that it was reversing a previous position concerning interest rates. Many analysts believe that if additional data continue to point to strong economic growth, the Fed will signal its intention to start raising interest rates in May and then do so at its June meeting.
The outlook for recovery is uncertain. Although many analysts are expecting
the economy to expand at a annual rate of up to 5 percent in the first
quarter, Fed officials are warning that the recovery may be weaker than
in the past. This is due to a reluctance on the part of business firms
to invest heavily in new equipment.
(Updated May 1, 2002)
|Source||Richard W. Stevenson, "Fed Leaves Rates Steady; Hints Increases May Be Coming," The New York Times, March 20, 2002.|
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