Fed Leaves Rates Unchanged

The FOMC says recent data continue to show the economy working out of a 'soft spot.'

Author:
Diane Hess
Publish date:
Dec 10, 2002 2:56 PM EST

The FOMC says recent data continue to show the economy working out of a 'soft spot.'

Updated from 2:22 p.m. EST

As was widely expected, the

made no change to monetary policy at its committee meeting Tuesday, leaving the fed funds rate at 1.25%, its lowest level in 41 years. The central bank also said the risks of weakness in the economy were balanced with the risks of inflation.

In its statement, the Federal Open Market Committee said the small amount of data released since its last meeting in November isn't inconsistent with an economy working its way out of its soft spot.

"The accommodative stance of monetary policy, coupled with still robust underlying growth in productivity, is providing important ongoing support to economic activity," the Fed said.

Few anticipated an additional reduction in rates, despite some spotty reports of weakness in the economy. Last week, the Labor Department said the economy lost 40,000 jobs in November and that the unemployment rate spiked up to 6%. Separately, the Institute for Supply Management's key index of manufacturing activity was weaker than expected.

Meanwhile, various retailers, including

Wal-Mart

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Target

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, and

Ann Taylor

(ANN)

had weak sales results for November.

After cutting the fed funds rate half a point in November, Alan Greenspan acknowledged the economy has hit a "soft spot," due to weak capital spending, a decline in stock values, corporate malfeasance and geopolitical risk. But he said already accommodative monetary policy would be enough to help work through it.

Tuesday's decision follows a shakeup of President Bush's economic team, in which Treasury Secretary Paul O'Neill and White House economic adviser Larry Lindsey resigned. Bush nominated

CSX

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chairman John Snow Monday as his new Treasury secretary.

The president is preparing to present a $300 billion fiscal stimulus package to Congress within the next few weeks, according to the

Wall Street Journal

, in efforts to bolster the economy.

The president Tuesday nominated William Donaldson, co-founder of

Donaldson Lufkin & Jenrette

, to replace Harvey Pitt as chairman of the

Securities and Exchange Commission

After the announcement, the

Dow