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Reuters
Fed Expected to Keep Rates Steady
Tuesday March 16, 3:54 am ET
By Glenn Somerville
WASHINGTON (Reuters) - Federal Reserve policy-makers were universally expected to keep U.S. interest rates at 46-year lows when they meet on Tuesday with no convincing signs of improvement in the jobs outlook.
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The U.S. central bank's rate-setting Federal Open Market Committee (News - Websites) was to convene at 9 a.m. EST to mull strategy, and was expected to announce a decision at about 2:15 p.m. EST.
The Fed's bellwether federal funds rate for overnight loans between banks -- which influences borrowing costs throughout the economy -- stands at the 1 percent level hit last June after the 13th in a string of cuts since 2001.
The Fed has since kept rates unchanged despite widespread signs of quickening economic activity.
Jobs are the missing link that will keep rates from being increased soon, analysts say. The stagnant job market worries central bank policy makers as well as President Bush, who faces November presidential elections where the economy is a key issue.
"I think the Fed can't possibly raise rates until it sees a definite upturn in employment," said economist Rich Yamarone of Argus research Corp. in New York. "I've always believed that it could be mid-2005 before we have a rate increase and I'm now thinking that it may be beyond even that."
DARK CLOUD OVER JOBS
A surprisingly low new-job tally of 21,000 in February rocked financial markets' confidence in the ability of the economy to generate robust employment, while events such as last week's train bombings in Spain have sent tremors through global investors' confidence.
Other economic signs have been more positive -- even robust -- such as the Fed's report on Monday that U.S. industrial output jumped by 0.7 percent in February while mines, factories and utilities ran at 76.6 percent of capacity.
That was the strongest operating rate since August 2001. But it fell far short of the 80 percent levels economists see as implying supply shortages, and it comes in an environment of low overall inflation, meaning there is little pressure to cool the economy with higher interest rates.
Some analysts said that while rates will remain steady on Tuesday, Fed policy-makers may use their end-of-meeting statement to make clear they are not tied to a timetable for keeping rates low -- something Fed Chairman Alan Greenspan emphasized earlier this month.
NEVER SAY NEVER
"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.
Gary Thayer, an economist with A.G. Edwards and Sons in St. Louis, Mo., said he will monitor closely whether the Fed retains its assessment that it can afford to "be patient" about raising rates. A change in the wording could give policy-makers more flexibility for future rate action, by eschewing any implication of a time limitation, he added.
"The economy is beginning to produce at an above-average rate and, early in the recovery cycle, companies do try to rebuild profits before they start hiring," Thayer said. "We're seeing that happen now and I agree with Greenspan that if that continues we'll see more job growth before too long."
The Fed in January dropped a pledge adopted in August to keep rates low for a "considerable period," and opted instead for a less specific promise of patience.
Reuters
Fed Expected to Keep Rates Steady
Tuesday March 16, 3:54 am ET
By Glenn Somerville
WASHINGTON (Reuters) - Federal Reserve policy-makers were universally expected to keep U.S. interest rates at 46-year lows when they meet on Tuesday with no convincing signs of improvement in the jobs outlook.
ADVERTISEMENT
The U.S. central bank's rate-setting Federal Open Market Committee (News - Websites) was to convene at 9 a.m. EST to mull strategy, and was expected to announce a decision at about 2:15 p.m. EST.
The Fed's bellwether federal funds rate for overnight loans between banks -- which influences borrowing costs throughout the economy -- stands at the 1 percent level hit last June after the 13th in a string of cuts since 2001.
The Fed has since kept rates unchanged despite widespread signs of quickening economic activity.
Jobs are the missing link that will keep rates from being increased soon, analysts say. The stagnant job market worries central bank policy makers as well as President Bush, who faces November presidential elections where the economy is a key issue.
"I think the Fed can't possibly raise rates until it sees a definite upturn in employment," said economist Rich Yamarone of Argus research Corp. in New York. "I've always believed that it could be mid-2005 before we have a rate increase and I'm now thinking that it may be beyond even that."
DARK CLOUD OVER JOBS
A surprisingly low new-job tally of 21,000 in February rocked financial markets' confidence in the ability of the economy to generate robust employment, while events such as last week's train bombings in Spain have sent tremors through global investors' confidence.
Other economic signs have been more positive -- even robust -- such as the Fed's report on Monday that U.S. industrial output jumped by 0.7 percent in February while mines, factories and utilities ran at 76.6 percent of capacity.
That was the strongest operating rate since August 2001. But it fell far short of the 80 percent levels economists see as implying supply shortages, and it comes in an environment of low overall inflation, meaning there is little pressure to cool the economy with higher interest rates.
Some analysts said that while rates will remain steady on Tuesday, Fed policy-makers may use their end-of-meeting statement to make clear they are not tied to a timetable for keeping rates low -- something Fed Chairman Alan Greenspan emphasized earlier this month.
NEVER SAY NEVER
"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.
Gary Thayer, an economist with A.G. Edwards and Sons in St. Louis, Mo., said he will monitor closely whether the Fed retains its assessment that it can afford to "be patient" about raising rates. A change in the wording could give policy-makers more flexibility for future rate action, by eschewing any implication of a time limitation, he added.
"The economy is beginning to produce at an above-average rate and, early in the recovery cycle, companies do try to rebuild profits before they start hiring," Thayer said. "We're seeing that happen now and I agree with Greenspan that if that continues we'll see more job growth before too long."
The Fed in January dropped a pledge adopted in August to keep rates low for a "considerable period," and opted instead for a less specific promise of patience.
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