Fed Leaves Rates, Bias Unchanged

The Fed kept its neutral policy bias, a surprise decision, and as expected left the fed funds rate unchanged.
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As expected, the

Fed's monetary policy committee left the key short-term interest rate unchanged today. At its last meeting of 1999, the

Federal Open Market Committee left its target for the

fed funds rate at 5.5%.

But surprising many forecasters, the FOMC maintained a neutral policy bias, indicating it thinks the rate can remain at its current level for the near future.

Most Street economists had predicted that the committee would shift to a tightening bias at today's meeting, indicating a strong likelihood of a rate hike at its first meeting of next year, on Feb. 1-2.

At least one first-quarter rate hike to 5.75% is almost universally expected because Fed officials have made clear that they are concerned that the combination of strong growth and low unemployment is likely to cause inflation to accelerate. Today's development is likely to lead people to look for the hike in the latter part of the quarter.

The FOMC was considered extremely unlikely to hike rates today because of the proximity of the Y2K date change, which has created extraordinary demand for short-term funding.

The fed funds rate, short for federal funds rate, is the interest rate at which banks lend to each other overnight. The discount rate -- also unchanged today, at 5% -- is the rate at which District Feds lend money to banks in their districts.