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Fed Expected to Keep Rates at 45-Year Low
WASHINGTON (Reuters) - The U.S. Federal Reserve, still aiming to steer the economy back to a sweet spot of accelerating growth and low inflation, was set to keep interest rates steady at a 45-year low on Wednesday. Shortly before the U.S. central bank's policymaking Federal Open Market Committee ( News - Websites ) (FOMC ( News - Websites ) ) began a second and final day of rate deliberations, the government reported that new orders for costly durable goods were flat in December -- a surprise that only reinforced expectations of no rate rise. "This is another reason for the Fed to not change its current monetary policy," said economist Mark Zandi Economist.com in West Chester, Pa. "The economy is recovering but is not roaring back." The Fed's trendsetting federal funds rate -- its principal tool for affecting interest rates throughout the economy -- is currently at 1 percent, a level it reached last June. In all likelihood, the wording that low rates can stick around for a "considerable period" also will be unchanged. The FOMC began meeting at 9:00 a.m. EST (1400 GMT) and was expected to announce its rates decision at about 2:15 p.m. EST (1915 GMT). With the outcome on rates a virtual foregone conclusion, analysts focused on how policymakers were likely to characterize the pace of activity. HOLD OFF ACTION "My guess is that the (FOMC) will say that the economy is improving solidly, but with the labor markets showing only modest improvement and inflation remaining low, there is little reason to do much for a 'considerable period,"' said economist Joel Naroff of Naroff Economic Advisors Inc. in Holland, Pennsylvania. He was referring to a vow the Fed made in August to keep rates low for some time. "Those two words will be removed eventually, but maybe not until the March or May meeting," Naroff added. That makes it likely any rate rises lie well into the year since lifting the wording would only be the stage setting for an eventual hike. The Commerce Department report on December durable goods orders -- though notoriously volatile and often revised -- came as a disappointment since Fed policymakers have indicated they want to see evidence of a business investment pickup before concluding a relatively recent spurt in growth has settled into a self-sustaining recovery. Paltry employment growth -- a mere 1,000 new jobs were created in December -- also has been unsettling as analysts seek signs that a manufacturing improvement and stronger consumer and business confidence will blossom into recovery. The Conference Board, a private research firm, said on Tuesday its index of consumer confidence jumped to 96.8 in January from a revised 91.7 in December, although worries were evident about job security. CAMPAIGN TRAIL FODDER Jobs have the White House fretful as well, especially with President Bush seeking re-election in November. Friday, Treasury Secretary John Snow said on CBS radio that private-sector forecasts for up to 1.85 million jobs in the next nine months seemed reasonable -- perhaps hopeful such growth will ease some of the pain of the 2.3 million jobs lost since the Bush administration took office. Many of the economy's vital signs have been strong, including a swift 8.2 percent annual rate of expansion in gross domestic product in the third quarter of 2003. New data for the fourth quarter come out Friday and economists surveyed by Reuters forecast a solid 4.8 percent advance in the closing months of the year. Back to Original Article: Mortgage News You Can Use
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