Fed - No change in rates; uncertain economy cited

Wednesday, May 8, 2002

WASHINGTON -- The Federal Reserve, with unemployment at an eight-year high and rising, left interest rates unchanged for a third time this year, allowing borrowers to enjoy some of the lowest loan rates in decades.

Federal Reserve Chairman Alan Greenspan and his colleagues cited a "still uncertain" economic outlook in their decision on Tuesday. The central bank's target for the federal funds rate, the interest banks charge each other, is at a 40-year low of 1.75 percent.

The decision means that commercial banks' prime lending rate, the benchmark for millions of consumer and business loans, will remain at 4.75 percent, the lowest level for this key rate since 1965.

"The Fed is in a wait-and-see attitude. They are in no hurry to consider a rate hike," said David Jones, chief economist at Aubrey G. Lanston & Co. in New York. He predicted the Fed may leave rates unchanged through August.

Dow shows gain

The decision to hold off on raising interest rates, which had been widely expected, did not do much for Wall Street. The Dow Jones industrial average finished the day up 28.51 points at 9,836.55.

The Fed last changed rates on Dec. 11 when it cut the funds rate for an 11th time as it was fighting to counteract the effects of the Sept. 11 terrorist attacks.

Many analysts had predicted at the last Fed meeting on March 19 that the central bank might begin raising rates at the May meeting. They based this forecast on the strong rebound that occurred in the first three months of the year.

However, since that time a number of statistics have pointed to an economy that was slowing after its initial spurt out of the starting gate.

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