Fed votes to hold interest rates steady

WASHINGTON -- Over the dissent of two of its members, the Federal Reserve on Tuesday held interest rates steady despite a wobbly economic recovery and worries about a possible war with Iraq. The dissenting pair favored a rate cut -- the first of the year.

Economists said that the 10-2 vote among the members of the Federal Open Market Committee -- the group responsible for setting interest-rate policy -- shows the difficulty even among experts to divine where the economy is heading during these turbulent times.

"I think this highlights the level of uncertainty and the confusion regarding the economy's outlook and how policy-makers should respond," said Mark Zandi, chief economist at Economy.com. "I don't think you can conclude that Fed chairman Alan Greenspan is losing control."

With Greenspan and his colleagues citing "geopolitical risks" -- something most economists viewed as a reference to Iraq -- as a potential danger to the fragile economy, many analysts said that odds are growing that the central bank will cut rates later this year, possibly at its next meeting on Nov. 6.

On Tuesday, two of the 12 Fed members -- Edward Gramlich and Robert McTeer -- wanted an immediate rate cut and voted against the central bank's decision to leave rates unchanged. That revealed a crack in the unified front often presented to the public.

Holding at 1.75 percent

Greenspan and the majority of his FOMC colleagues, at the closed-door meeting, voted to keep the federal funds rate, the interest that banks charge each other on overnight loans, at a 41-year low of 1.75 percent. It marked the sixth consecutive Fed meeting this year that policy-makers decided to leave rates alone.

The funds rate dropped to 1.75 percent in December, which marked the last time the Fed lowered short-term rates and the last time a dissenting vote was cast on the FOMC.