Central Bank Leaves Interest Rates Unchanged : Economy: Fed’s lack of action was expected. Analysts say governors may be waiting for road signs.
Confronted with mounting evidence of an economic slowdown, the Federal Reserve Board did the expected Tuesday and left interest rates unchanged.
Analysts said the central bank may continue to keep rates on hold until there are clear signs about where the economy is headed.
The Federal Open Market Committee, the central bank’s policy-making body, met privately for three hours without taking any action on rates.
Afterward, Fed spokesman Joseph Coyne said there would be no further announcement. Under rules the Fed adopted this year to help guide financial markets, that means there is no change in monetary policy.
During the 12-month period ended Feb. 1, the Fed acted in seven stages to double--to 6%--the rate that banks charge each other for overnight loans. In turn, that pushed the bank prime lending rate up to 9%, and both rates have remained at those levels for about four months.
Many analysts expect the economy to regain momentum this year, causing the Fed to raise rates again. But they said that isn’t likely to occur at the Open Market Committee meeting July 5-6 and might not take place until the fall.
“I’m bullish,” said economist Samuel Kahan of Fuji Securities Inc. in Chicago. “I think this is a pause that refreshes, and the next step will be a pickup in the economy that leads to a tightening.”
But he said it could be August or September before there is enough hard data “to convince people there is some direction” to the economy.
Other analysts say the growth is much weaker than it appears and that the rate hikes by the Fed have yet to fully show up.
“The momentum has slowed, no one is disputing that,” said economist Sung Won Sohn of Norwest Corp., a Minneapolis bank. “But what the Fed does not know is how much of the previous credit tightening will come out of the pipeline in the future.”
Predicting that the central bank will cut interest rates as the 1996 election year approaches, Sohn said Fed Chairman Alan Greenspan and his colleagues “have to be sensitive to economic indicators, and they also must have pretty good political antennae.”
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