Fed Holds Steady On Rates, Warns of 'Weakness'

May 6, 2003 (PLANSPONSOR.com) - The Federal Reserve decided to keep US interest rates at 1961 lows, but warned it stood ready to lower borrowing costs if the still shaky economy developed further weakness.

The central bank’s policy-setting Federal Open Market Committee (FOMC) restored the “balance of risks” assessment dropped at its last meeting on March 18, when it said pending war with Iraq made gauging the economy’s prospects impossible (See Fed Stands Pat On Rates; Keeps Eye on Baghdad ).   “The (FOMC) perceives that over the next few quarters the upside and downside risks to the attainment of sustainable growth are roughly equal,” the Fed said in a Tuesday statement.

While the FOMC kept the trend-setting federal funds rate for overnight loans between banks at 1.25%, where it has been since a cut last November, its caution about weakness could set the stage for rate reductions at its next meeting in June if economic signals remain weak. “ The (FOMC) believes that, taken together, the balance of risks to achieving its goals is weighted toward weakness over the foreseeable future,” Fed officials said.

The Fed statement is at http://www.federalreserve.gov/boarddocs/press/monetary/2003/20030506/default.htm .