For most of 1999,
Federal Reserve Board members have “Bah-Humbugged” consumers with higher rates. But it looks like even Alan Greenspan has decided some holiday cheer is in order.
At their last meeting of the year on Dec. 21,
officials decided to leave both the federal funds rate and the federal discount rate unchanged. The Fed’s Federal Open Market Committee, which sets interest rate policy, uses the two rates to manage the economy: Lower rates encourage growth. Higher ones retard it.
‘Bias’ in neutral
FOMC members also decided against changing its official “bias.” That bias, which the Fed has revealed in post-meeting statements since earlier this year, indicates whether officials think they’ll have to raise or lower rates in the near future.
The actions come as little surprise to market watchers. For several weeks, they have speculated the Fed wouldn’t do anything drastic because of fears about the Y2K rollover and its potential effect on the economy. Indeed, the Fed said as much in its post-game wrap up.
“In light of market uncertainties associated with the century date change, the Committee decided to adopt a symmetric directive in order to indicate that the focus of policy in the intermeeting period must be ensuring a smooth transition into the Year 2000,” the statement said. The “intermeeting period” is the time between now and Feb. 1 and 2, when FOMC members next gather to discuss interest rates.
Inflation concerns continue
Still, the Fed did express some concern about inflation. If economic demand continues unabated, it might outpace supply, driving prices higher, according to the agency’s statement.
“Such trends could foster inflationary imbalances that would undermine the economy’s exemplary performance,” the Fed said. “At its next meeting the Committee will assess available information on the likely balance of supply and demand, conditions in financial markets, and the possible need for adjustment in the stance of policy to contain inflationary pressures.”