Fed Leaves Key Interest Rates Untouched
Aug. 13 -- The Federal Reserve today kept interest rates steady, as expected, despite ongoing uneasiness about the economy. But the Fed also signaled that it would be willing to lower rates in the future should the nation's economic weakness continue.
The central bank left its key short-term federal funds rate unchanged at 1.75 percent, the lowest level it's been in 40 years, a move that disappointed some on Wall Street.
Indeed, after the Fed's decision, the Dow Jones Industrial Average closed down more than 200 points, despite the Fed's signal that it could lower rates in the future if economic conditions worsen.
The Fed's decision came on the heels of — and to a large extent, overshadowed — President Bush's economic summit in Waco, Texas, where the uncertainty over the economy was a key theme.
In a statement, the Federal Reserve said that weakness in financial markets and heightened uncertainty over the problems in corporate reporting and governance have prolonged the softening of demand that started in the spring.
Even though the Fed said its current interest rate stance should be enough to foster an improving business climate, one of the greatest risks that remains is a further slowing of the economy, which would raise the odds of further rate cuts.
"The risks are weighted mainly toward conditions that may generate economic weakness," said the Fed statement.
Crucial Move
While many economists had not expected the Fed to lower its key interest rate, speculation had heated up in recent weeks that the central bank might lower short-term rates to stabilize what many economists see as a still-weak economy.
But with key rates already at record lows, other analysts correctly maintained the Fed would hold off from further cuts in anticipation of signs of economic recovery. Some economists had even worried that another rate cut would be viewed as a sign of panic by the Fed, causing more harm than good to the economy.
Now the question remains what the central bank will do with interest rates for the rest of the year.
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