Newspaper article THE JOURNAL RECORD

Analysts Expect Fed to Hold Line on Rates

Newspaper article THE JOURNAL RECORD

Analysts Expect Fed to Hold Line on Rates

Article excerpt

WASHINGTON (AP) -- With unemployment at its highest level in nearly eight years, the Federal Reserve will hold interest rates steady this week and won't start to raise rates until joblessness begins to fall, economists forecast Monday.

On the eve of Tuesday's regular meeting of Fed officials to review interest rates, analysts were in widespread agreement that the central bank will not see this as the right time to start boosting interest rates as a pre-emptive strike against inflation.

Last week, the government reported that the unemployment rate climbed to 6 percent in April, the highest level since August 1994.

That report was the most dramatic of a number of indicators showing that the recovery from last year's recession, after surging out of the starting gate in the January-March period this year, was slowing down.

The lackluster data on economic activity, coupled with continued weak earnings reports from corporate America, has battered Wall Street in recent weeks.

"We are in the midst so far of a jobless recovery and a profitless recovery. That is a double-whammy on financial markets and the Fed doesn't want to make it a triple- whammy by raising interest rates," said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis.

The central bank's Federal Open Market Committee, which meets eight times a year to set interest rate policies, has not changed rates since last December, when it capped a yearlong easing drive by cutting its target for the federal funds rate, the interest that banks charge each other, to a 40-year low of 1.75 percent.

Banks' prime lending rate, which follows changes in the funds rate, is now 4.75 percent, meaning that consumers and businesses are enjoying the lowest short-term borrowing costs since 1965.

At its last meeting on March 19, the FOMC left rates unchanged but raised expectations of future rate increases by dropping the language it had been using for more than a year that the greatest danger facing the economy was weak growth.

That wording change sparked concerns that with increasing signs of an economic rebound, the central bank was getting ready to start raising interest rates to make sure the stronger growth did not spark inflation pressures. …

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