Fed maintains interest rates

WASHINGTON D.C.-- The Federal Reserve, not wanting to upset the economic recovery, held a main short-term interest rate at a 45-year low Wednesday. But the central bank hinted rates could move higher in the future.\nWrapping up a two-day meeting -- the first regularly scheduled session of the year -- Federal Reserve Chairman Alan Greenspan and his colleagues left the federal funds rate unchanged at 1 percent. The funds rate, the interest banks charge each other on overnight loans, is the Fed's primary tool for influencing the economy. The Reserve lowered the funds rate to its current 1 percent level in June and the rate hasn't budged since then.\nHowever, the fed used some new language in its statement Wednesday, saying "with inflation quite low ... the committee believes that it can be patient in removing its policy accommodation."\nThat's different wording from previous statements when the Reserve said it had leeway to keep short-term rates low for a "considerable period" -- a phrase it had been using since August.\nEconomists viewed the new language as a small first step by Federal Reserve policy-makers to prepare Wall Street and Main Street for higher interest rates down the road -- but said a rate increase is not imminent.\n"What Fed policy-makers are saying is that they are getting the market ready for tighter monetary policy eventually. But they are not going to raise interest rates any time soon," said Wells Fargo's chief economist Sung Won Sohn.\nOn Wall Street, stocks fell after the Fed's announcement. The Dow Jones industrials were off 80 points and the Nasdaq was down 18 points in afternoon trading.\nThe Reserve said since its last meeting in December, economic reports suggest the economy is "expanding briskly." It added "although new hiring remains subdued, other indicators suggest an improvement in the labor market."\nThe Fed's decision to leave the funds rate alone means commercial banks' prime lending rate for many short-term consumer and business loans remains at 4 percent, the lowest level in more than four decades.\nAn environment of low short-term borrowing costs may give consumers and businesses an incentive to spend and invest more, boosting economic growth.\nDespite improvements in the national economy, job seekers still find it difficult to get work and businesses aren't yet firing on all cylinders, economists said.\nThe nation's payrolls grew by a minuscule 1,000 in December, raising new concerns about the fragile state of the labor market. The unemployment rate dipped to 5.7 percent, but that was mainly because thousands of prospective workers gave up looking for jobs.\nThe economy has lost 2.3 million jobs since President Bush took office in January 2001. The president believes a stronger economy will lead to more jobs. Democrats point to the job losses as evidence of what they say are the president's failed economic policies.\nAnalysts are hopeful that stronger job growth will take place later this year as businesses feel more confident in the economy and see their bottom lines improve.\nEven with the Fed dropping its pledge Wednesday to hold short-term rates low for a "considerable period," some economists continue to believe the Reserve will leave rates at current levels throughout this year. That would be good news for America's borrowers and consumer-sensitive industries such as housing. New-home sales set a record high for all of 2003, the government reported Wednesday.\nOthers, however, believe the Fed will begin to nudge up rates later this year. Some predict the first rate increase could come as early as June. The last time the Federal Reserve raised rates was May 2000, when the economy was enjoying a record expansion.\nThe economy fell into recession in 2001, struggled to get out and finally perked up in the second half of last year.\nIn the third quarter of 2003, the economy grew at blistering 8.2 percent rate -- the strongest performance in nearly two decades. Economists believe economic growth slowed to a rate of around 4 to 5 percent in the final quarter of last year, which would still be brisk. The government on Friday will release its first estimate of economic growth for the fourth quarter.\nEconomic growth in the current quarter is projected to be solid -- at a rate of just over 4 percent, economists said.