Fed: No Rate Action Needed

September 16, 2003 (PLANSPONSOR.com) - Federal Reserve interest-rate cutters may have sore shoulders from their recent axe wielding to drive short-term rates to a 45-year-low, but Tuesday they continued their rate-cutting respite.

The Fed announced that its Federal Open Market Committee (FOMC) stood pat with its federal funds target of 1% with a recent flock of economist reports showing that a recovery has begun – albeit a slower-than-expected one. The FOMC last whacked at the federal-funds rate in June  – charged for overnight loans between banks – dropping it a quarter point to its current 1% level (See  Fed Slashes Rates to Four Decade Lows ).

In its regular post-meeting statement, FOMC members said the course to leave rates alone, which they also followed in August (See  Fed Holds Rates Steady ), seems to be giving the US economy a shot in the arm even while admitting the still anemic jobs market continues to be a worry. “The Committee continues to believe that an accommodative stance of monetary policy, coupled with robust underlying growth in productivity, is providing important ongoing support to economic activity,” the Fed officials said. “The evidence accumulated (since the August meeting) confirms that spending is firming, although the labor market has been weakening.”

As it has in prior meetings, the committee confessed its fear of an unwelcome fall in inflation – or deflation – calling it the “predominant concern.”   With upside and downside risks to building sustainable growth balancing out, the Fed officials again asserted that their current low-rate policy “can be maintained for a considerable period.”

The deliberations of the FOMC are important to plan sponsors because many 401(k) plan loans are tied to the Prime Rate, which can be driven up or down by Fed monetary policy actions.