Fed Leaves Rates Alone

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Nothing was expected to happen, and nothing did.

The

Federal Open Market Committee

, the

Fed's

interest-rate-setting council, voted to leave both the Fed funds and the discount rates unchanged at its first of eight meetings this year, which started Tuesday and wraps up Wednesday. Fed funds is the Fed's target for the rate banks charge each other for overnight loans. The discount rate is the rate the Fed charges its member banks for loans.

We won't find out why they voted that way until minutes of the meeting are released a few days after the next meeting on March 31, in accordance with Fed policy. But ostensibly the committee members, led by Fed Chairman

Alan Greenspan

, concluded that the economy is in perfect balance -- in need of neither higher rates to ward off inflation nor lower ones to stimulate growth. Inflation as measured by the

Consumer Price Index

is at an 11-year low. And growth, though expected to slow as the Asian economic crisis takes its toll, is proceeding apace thanks to strong job and income growth, low commodity prices and low interest rates.

No change was the outcome everyone expected. That's no exaggeration. In a survey by

Dow Jones

last week, every last one of the chief economists at the 36 securities firms that serve as primary dealers for U.S. government bonds predicted that the FOMC would leave rates unchanged. And all but one firm,

HSBC Securities

, expects nothing out of the March 31 meeting as well. HSBC is forecasting an 0.25% Fed funds hike from the current level of 5.5%.

The bond market is taking the announcement in stride. The benchmark 30-year Treausury bond is up 5/32 at 103 25/32 5.86%.