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Tuesday, 21 December, 1999, 19:39 GMT
Bug fears keep rates on hold

holiday shopping The rates decision is an early Christmas gift for some

US interest rates have been left unchanged - because of millennium bug fears.

The Federal Reserve, which sets interest rate policy, says it is worried about inflation taking off.

A rate hike would have helped cool the economy, but Fed chiefs said they were holding off from a rise, because of potential troubles caused by the date change to 2000.

But Fed members said they were likely to have a rethink in the New Year.

Alan Greenspan is aware that the millennium will test the ability of the financial and banking system to cope with the potential computer problems of the millennium.

Fed chief Alan Greenspan Alan Greenspan: inflation hawk
By leaving rates unchanged, the federal funds rate, the interest that banks charge each other on overnight loans, continues to stand at 5.5%.

In a brief statement, the Fed said it remained concerned that the economy is growing too rapidly, which could spark inflationary pressures.

But the central bank said it had decided to hold rates unchanged at this meeting because it wanted to focus interest rate policies on ensuring "a smooth transition into the Year 2000."

Economists had expected the central bank would leave rates unchanged because of its fears that any further tightening this close to the end of the year would add uncertainty to the banking system.

In its statement, the Fed said it was keeping its policy directive at neutral, but warned that after the financial institutions have dealt with the Year 2000 computer date change it will re-examine whether further rate increases will be needed to slow the economy to a more sustainable pace.

Stocks rose immediately on the news, from 11,141, to 11218, within minutes of the announcement.

The Fed has already raised rates three times this year to cool the economy, and base rates currently stand at 5.5%, with the last increase at November's meeting.

Yet the US economy has shown no signs of slowing down.

The economy is just growing gangbusters
Brian Fabbri, Paribas
After eight years of expansion, February will mark the longest continuous boom in US history.

If anything, the US economy even accelerated in the last few months, as consumers continued to spend at record levels.

Overall economic output increased by over 5% in the most recent quarter - perhaps double the rate most economists believe is sustainable in the long-term.

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See also:
20 Dec 99 |  Business
Will the Fed play Scrooge for Christmas?
15 Nov 99 |  The Economy
US Fed raises rates
05 Nov 99 |  The Economy
US wages steady despite jobs record
17 Nov 99 |  The Economy
US inflation still subdued
08 Dec 99 |  Business
Reassuring signs on US economy

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