Fed Leaves Rates Unchanged

January 28, 2004

WASHINGTON — Federal Reserve officials opted Wednesday to hold U.S. interest rates at 1958 lows, as policymakers reiterated their intention to keep borrowing costs down for a long time while still saying the threat of falling prices had eased.

Fed Chairman Alan Greenspan and his Federal Open Market Committee colleagues -- the group that sets interest rate policy in the United States -- said it had voted unanimously to leave the benchmark federal funds rate at 1 percent.

The funds rate, the interest that banks charge each other on overnight loans, is the Fed's primary tool for influencing the economy. It is at a 45-year low after the Fed cut rates 13 times since early 2001 in an effort to foster a vigorous expansion.

Both monetary and fiscal policy-makers this year have had the mixed blessing of the lowest rates of price rises since the 1960s -- creating more room for interest-rate and tax cuts but also raising the specter of deflation for the Fed and making it harder for businesses to make profits.

Price rises were so tame that the normally inflation-wary Fed was concerned that deflation -- a punishing round of price and wage declines that would leave debts intact -- could set in and was one of the main reasons for it saying it would keep rates low for a considerable period.

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