Fed Keeps Interest Rate Machine in Idle

January 28, 2004 (PLANSPONSOR.com) - As it has in recent months, the Federal Reserve shied away Wednesday from changing interest rates from their decades-old lows.

In its customary end-of-meeting statement, the Federal Open Market Committee (FOMC) announced that it was keeping its federal funds rate target at 1%.

In their accompanying comments, the Fed officials mirrored much of their sentiment expressed in their last several monetary policy meetings that the risks of inflation are subdued enough to allow the central bank to keep its policy in neutral for some time (See  Fed Holds Steady on Rates ). Commented FOMC members: “With inflation quite low and resource use slack, the Committee believes it can be patient in removing its policy accommodation.”

The only change came in a Fed comment that the danger of extremely low inflation – or “deflation” – has lessened “and now appears almost equal to that of a rise in inflation.”

Fed officials said their low rates and the economy’s own productivity gains are providing “important ongoing support to economic activity.” Regarding the still faltering job picture, the FOMC asserted, “Although new hiring remains subdued, other indicators suggest an improvement in the labor market.”

Interest rate policy is important for plan sponsors because many plans’ loan interest rates are tied to the Prime Rate.