Federal Reserve holds key interest rate steady
Chances for sustainable growth "roughly equal," FOMC says

The policy-making group of the Federal Reserve, the US central bank, has voted to leave its key interest rate unchanged as the US economy keeps sending mixed signals.

In an August 12 statement the Federal Open Market Committee (FOMC) said it will keep the federal funds rate -- the rate banks charge each other for overnight loans -- at 1 percent.

The FOMC cited "firming" spending as a possible sign of more sustained economic expansion but cautioned that "mixed" labor market indicators do not completely support a high probability of such a development. So, the "upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal," it said.

"The Committee continues to believe that an accommodative stance of monetary policy, coupled with still-robust underlying growth in productivity, is providing important ongoing support to economic activity," the FOMC said.

The last time FOMC met June 24-25 it cut its funds rate by one quarter of a percentage point, making the first move on interest rates since November 2002.

Some economic data released in recent weeks, including figures from the manufacturing and service sectors and a number of initial unemployment claims, may indicate a pick up in the speed of economic expansion. But other labor market numbers suggest that the economy continues to lose jobs.

The August 12 meeting marks the third time in 2003 the FOMC said the probability, "though minor," of an "unwelcome" fall in inflation is exceeding that of a rise in inflation.

"The risk of inflation becoming undesirably low is likely to be the predominant concern for the foreseeable future," FOMC said. "In these circumstances, the Committee believes that policy accommodation can be maintained for a considerable period."

The U.S. monetary policymakers are concerned that they may have a limited choice of policy tools for promoting recovery if inflation slides too close to zero, according to news reports.

Federal Reserve Governor Ben Bernanke said July 23 that keeping the federal funds rate target at or near its current level for an extended period may be sufficient to keep disinflation in check. But should that prove insufficient, he said, the bank may need to cut the rate further, all the way to zero, despite the costs such an action would impose on savers and some financial institutions.