US Federal Reserve holds interest rates steady US Federal Reserve holds interest rates steady 2002/2/1 The US Federal Reserve on Wednesday halted a year-long campaign of rate cuts and said the outlook for a US economic recovery was brightening. The Fed vote of confidence in the future came hours after a government report highlighted the resilience of the US economy. The Commerce Department said gross domestic product grew at a slim 0.2 percent rate in the fourth quarter, belying forecasts that output would keep shrinking, which analysts said meant a recession that started last March was ending or over. Policysetting members of the US central bank's Federal Open Market Committee announced after a two-day meeting that the fed funds rate charged on overnight bank loans would remain unchanged at a 40-year low of 1.75 percent. The more symbolic discount rate was also unmoved at 1.25 percent. The fed funds rate is a benchmark that influences charges for everything from new-car loans to corporate borrowing. ``Signs that weakness in demand is abating and economic activity is beginning to firm have become more prevalent,'' the Fed said in characteristically oblique language that still signaled a markedly more upbeat attitude. RATE-SLASHING CAMPAIGN ENDS The Fed decision suspended one of the most aggressive easing campaigns in the US central bank's history, in which it ratcheted the key lending rate down 11 times during 2001 by a full 4-3/4 percentage points. Analysts said the Fed decision likely meant a period of stable interest rates lies ahead. The central bank, which next meets March 19, will watch data closely over the next few weeks to determine whether the economy is poised for a sustained recovery. Economist Joel Naroff of Naroff Economic Advisors Inc. in Holland, Pa., said that with the GDP report showing inventories were drawn down at a record pace in last year's closing quarter and spending by government and consumers still healthy, there might be ``very strong growth rates'' in coming quarters. ``Under normal circumstances, I could see a rate hike as early as May,'' he said, but added the Fed may hold off for fear of another attack like those that occurred on Sept. 11. ``The FOMC may wait until it sees that the recovery is strong enough to withstand another shock,'' Naroff said. In a statement, the Fed sounded more optimistic about prospects for the world's largest economy than it had in months, but it coupled the good news with a warning that performance in some sectors remained questionable. ``With the forces restraining the economy starting to diminish, and with the long-term prospects for productivity growth remaining favorable and monetary policy accommodative, the outlook for economic recovery has become more promising,'' the central bank said in its post-meeting statement. ``The degree of any strength in business capital and household spending, however, is still uncertain,'' it added. The Fed repeated its long-held warning that economic weakness, not inflation, continued to be the main threat facing the US economy -- language that signaled policymakers were leaving open the option of more rate cuts should a recovery fail to take hold. SHORT AND SHALLOW DOWNTURN Economist Peter Kretzmer of Banc of America Securities LLC in New York said the fourth-quarter GDP report indicated the recession will be brief and mild by historical standards and that there was every reason to expect ``rather robust'' growth in the second and third quarters. As a result, Kretzmer added, ``the next Fed move will likely be a tightening by mid-year.'' Futures contracts on the fed funds rate, traded in Chicago, similarly showed a doubling to 50 percent in odds that the Fed will raise rates in May. A Reuters poll of 24 top bond dealers, conducted after the Fed decision was announced, found 21 thought rates will stay on hold through mid-year with considerable division between them about when policymakers will start raising rates. By year end, though, 21 of the 24 dealers anticipated the fed funds rate would be pushed up to 2 percent or higher. The Fed decision to keep rates steady and its more upbeat vision of the road ahead boosted stock prices after a sharp sell-off on Tuesday. The Dow Jones industrial average climbed 144.62 points to close at 9,762.86 while the Nasdaq composite index added 20.45 points and ended at 1914.44. Bond prices, which benefit when rates are falling, suffered. Prices for 30-year US Treasury bonds fell 20/32s of a point in late trade. A number of analysts said the Fed clearly hoped it would not have to resume lowering rates but apparently felt it was too soon to know how strong or durable a recovery will emerge. ``I don't think the Fed needs to do anything else, but the recovery will be weak enough...that the Fed will not need to raise rates this year,'' said economist Robert Macintosh of Eaton Vance Management Inc. in Boston. Fed Chairman Alan Greenspan told Congress last week the economy appeared to be turning a corner and a spate of more upbeat data has supported this view. The Fed lowered interest rates throughout 2001, cutting borrowing costs at every one of eight scheduled FOMC meetings and three times between meetings. Initially, policymakers sought to renew growth which had slowed significantly as 2000 drew to a close, with the record decade-long expansion petering out completely in March 2001. Then the Fed tried to soften an economic slide after the Sept. 11 attacks that leveled the World Trade Center in New York and damaged the Pentagon, denting consumer confidence. But confidence did not falter for long. Earlier this week, the Conference Board, a New York-based research group, said consumer attitudes improved in January. Its consumer confidence index jumped to 97.3 from a revised 94.6 in December. Close Windows MAKINGINVESTMENT INHUANGPU DISTRICTGUANGZHOU