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U.S. Holds Key Interest Rate At 1958 Low

By Agence France-Presse U.S. Federal Reserve policymakers Aug. 12 held the key interest rate at a 1958 low and promised to keep it down for "a considerable period." Federal Reserve Chairman Alan Greenspan and his Federal Open Market Committee (FOMC) colleagues voted unanimously to leave the federal funds target rate unchanged at a 45-year low of 1%. They also hinted that the specter of deflation -- an economically damaging slump in prices -- would keep a lid on interest rates for the foreseeable future. "On balance, the risk of inflation becoming undesirably low is likely to be the predominant concern for the foreseeable future," the FOMC said in a statement. "In these circumstances, the committee believes that policy accommodation can be maintained for a considerable period." Policymakers said they believed low interest rates and robust growth in productivity were providing "important ongoing support." "The evidence accumulated over the inter-meeting period shows that spending is firming, although labor market indicators are mixed," they said, alluding to weak job markets. Additionally, "Business pricing power and increases in core consumer prices remain muted." The chances of attaining sustainable economic growth appeared to be balanced, FOMC members said. But the policymakers also squashed expectations that interest rates might be raised anytime soon. "The probability, though minor, of an unwelcome fall in inflation exceeds that of a rise in inflation from its already low level," they said. Expectations of faster economic growth, and an accompanying rise in interest rates, have driven bond yields higher in recent weeks, pushing up mortgage rates and thus menacing the red-hot U.S. housing market. Copyright Agence France-Presse, 2003

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