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Tuesday, March 30, 1999 Published at 19:16 GMT 20:16 UK


Business: The Economy

US interest rates left unchanged

Difficult decisions for Alan Greenspan, chairman of the Federal Reserve

The US central bank, the Federal Reserve, has decided to leave interest rates unchanged amid considerable uncertainty about the direction of the country's economy.

Most economists had predicted that there would be no change from the current rate of 4.75%.

The main source of suspense had been whether the Fed would put into practice a new policy of sometimes announcing changes in its "bias," or the likely direction of future rate moves.

Some economists expected the bank to announce that it had a adopted a bias toward tightening monetary policy, which would signal it was growing more concerned about the economy overheating.

No such announcement was made.

Worries remain

The Fed is worried that the US economic boom, which is set to enter its eighth year, is about to end in a bout of inflation - although there is no evidence of inflationary pressures in the US economy at present.

At the same, time, it is worried that the global financial crisis, that came close to meltdown in the autumn, is still rumbling on in Latin America.

That crisis led the Fed to cut rates three times in the autumn, to the current level of 4.75%.

Given the uncertainty, most analysts expected the central bank to leave interest rates unchanged.

No statement was issued with the announcement. This surprised some economists who had predicted that the Federal Reserve would announce a "bias towards tightening" - giving advance notice that if it does change interest rates, the next move is likely to be towards higher rather than lower rates.

In December, the Fed changed its rules so that it now immediately announces any change in strategy which is deemed significant enough to affect the markets.

Stock market boom

Many economists believe that the Fed will have to raise rates eventually, but is hoping that the economy will slow on its own accord.

"A recovery this strong is bound to drive up inflation," said Ken Goldstein of the Conference Board.

But, he added, the Fed would probably wait until June to raise rates.

Sun Won Sohn of Wells Fargo believes that although Fed is worried that the stock market is over-valued, it is reluctant to step in.

"Politically, it could be difficult to hike rates .. (because Fed Chairman) Greenspan doesn't want to be blamed for a stock market crash," he said.



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