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Fed keeps key funds rate at 1%

May 4, 2004

Policy accommodation can be removed at pace 'likely to be measured'


Inman News

The Federal Reserve's Open Market Committee decided today to keep its target for the federal funds rate at 1 percent.

The Fed did, however, change some of the wording in its policy statement, a move most analysts expected.

Specifically, the Fed said it "believes that policy accommodation can be removed at a pace that is likely to be measured." Previously, it said it believed it could be patient in removing its policy accommodation.

The evidence accumulated over the intermeeting period indicates that output is continuing to expand at a solid rate and hiring appears to have picked up, according to the Fed. It also said that "although incoming inflation data have moved somewhat higher, long-term inflation expectations appear to have remained well contained."

The Fed said the upside and downside risks to the attainment of sustainable growth for the next few quarters are roughly equal.

Observers had not expected the Fed to raise rates at today's meeting, but to instead tinker its policy wording to ready the markets for a future increase.

The federal funds rate, which banks charge each other overnight, is at a 46-year low of 1 percent. A change in the Fed's target rate has no direct effect on other rates, but it could have an indirect effect on other rates, such as mortgages.

Copyright: Inman News Features



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