U.S. Leaves Rates at 40 Year Low
by the AFP 5/8/2002

Markets had expected the federal funds target rate of 1.75 percent to emerge unscathed from the Federal Open Market Committee meeting while doubts lingered over the recovery.

"The information that has become available since the last meeting of the committee confirms that economic activity has been receiving considerable upward impetus from a marked swing in inventory investment," the policymakers said in a statement.

"Nonetheless, the degree of the strengthening in final demand over coming quarters, an essential element in sustained economic expansion, is still uncertain."

US economic output expanded 5.8 percent in the first quarter of this year, but it was fuelled largely by a sharp reduction in companies' reliance on inventories.

Now, the policymakers are waiting for more concrete evidence that final demand -- from business investment to consumer spending -- will kick in to support the recovery going forward.

With few inflationary pressures notable in latest economic data, the Federal Reserve policymakers indicated they saw no need to change the easy monetary policy for the foreseeable future.

"In these circumstances, although the stance of monetary policy is currently accommodative, the committee believes that, for the foreseeable future, against the background of its long run goals of price stability and sustainable economic growth and of the information currently available, the risks are balanced with respect to the prospects for both goals," they said.

The Federal Open Market Committee has left rates intact in all three meetings so far this year, after slashing the key rate from 6.50 percent in a 13-month spree that ended in December.

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