The US Federal Reserve kept interest rates steady at a 41-year low last night, saving its dwindling ammunition in hope the economy can forge its way past a "soft spot" to more vigorous growth in 2003.
The unanimous decision by the central bank's Federal Open Market Committee leaves the trend-setting federal funds rate at 1.25 per cent, the level it hit after the Fed slashed borrowing costs by a bold half percentage point in November.
"The limited number of incoming economic indicators since the November meeting, taken together, are not inconsistent with the economy working its way through its current soft spot," Fed policymakers said in a statement after their meeting that added little new to the assessment offered last month.
Analysts said the Fed clearly hoped it was done cutting rates, but its wording pointed to a sliver of doubt.
The big cut in November was the only rate reduction in 2002. But the Fed lowered interest rates 11 times in 2001 as it bid to pull the economy out of a shallow recession and to give it some lift after the shock of the September 11th terror attacks.
Several Fed officials including Chairman Mr Alan Greenspan described the November move afterward as "insurance" against a renewed downturn. However, they left no doubt the US central bank could and would act to boost economic activity again, regardless how low current rates were.
"There's virtually no meaningful limit to what we could inject into the system were that necessary," Mr Greenspan said while testifying on Capitol Hill, aiming to quash any doubt that current low rate levels hampered the Fed from further stimulative policy action if needed to ward off deflation.
Policymakers maintained their characterization of the risks the economy faces as being evenly balanced between rising prices and a renewed downturn. This was the position they adopted last month when they cut rates, and it was seen as a signal of steady rates for some time ahead.
Financial markets took the Fed decision in stride since it was fully anticipated. But the Dow Jones Industrial Average ended solidly higher, up 100.85 points at 8,574.26 and the Nasdaq composite index gained 23.62 to end at 1,390.76, largely on buying of recently beaten-down stocks.