FOMC Leaves Fed Funds Rate At 1.25%

By John S. McClenahen The Federal Open Market Committee (FOMC), the 12-person policy-making arm of the Federal Reserve Board, has left the influential federal funds rate at 1.25%. Significantly, at the conclusion of a two-day Washington, D.C. meeting ending Jan. 29, Chairman Alan Greenspan and his colleagues also did not abandon their "neutral" stance on the U.S. economy, asserting that "for the foreseeable future" the risks are balanced between maintaining price stability and sustainable economic growth. That should calm pre-meeting concerns among some executives and economists that the U.S. economy was about to fall back into recession and that the FOMC would acknowledge this by signaling its readiness to cut the federal funds rate soon. Indeed, the FOMC said that as oil price pressures and the risk of war with Iraq diminish, current monetary policy and continuing U.S. productivity growth "will provide support to an improving economic climate over time." In short, the message from the FOMC is that the U.S. economy is improving -- as recent manufacturing indexes have indicated -- though perhaps not at the pace many had hoped for.

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