Fed Decides Not To Boost Interest Rates Central Bank Opts To Wait For New Economic Signals

The Federal Reserve left interest rates unchanged Tuesday, deciding to await further developments before making another move on monetary policy.

Wall Street, which had pushed the Dow Jones industrial average to three straight closing records because of a growing belief that the central bank was through tightening credit, took the inaction in stride.

The Dow finished the day slightly below Monday’s record close, down 5.53 to 4,151.81. Bond prices fell as well, pushing the yield on the 30-year Treasury to 7.38 percent, compared to a nine-month low of 7.31 percent set Monday.

There had been a widespread expectation that this week’s regular meeting of the Federal Open Market Committee would produce no new rate increases. However, depending on where they think the overall economy is headed, private economists are sharply split over what will happen the next time the panel meets May 23.

The central bank has raised short-term interest rates seven times since February 1994 in an effort to slow growth and keep inflationary pressures in check.

Some analysts are insisting that the rate increases - the last of which came Feb. 1 - are beginning to have a pronounced effect on the economy, especially in consumer purchases of big-ticket items such as houses and cars.

This group insists that the Fed will not raise rates further. In fact, some are calling for the Fed to start cutting interest rates to keep the economy from tumbling into a recession.

“The economy has clearly slowed and that is before the full impact of the Mexican crisis hits U.S. exports and before the full impact of the Fed’s previous rate hikes come through,” said Lawrence Chimerine, chief economist at the Economic Strategy Institute in Washington.

He said Fed officials should begin working now to seek a coordinated cut in interest rates with their counterparts in Japan and Germany. A coordinated rate cut in all three countries would be preferable, he said, because it would protect the dollar from losing more ground against the Japanese yen and the German mark.

But some analysts said they were looking for another rate increase in May and more in the second half of the year.

“The Fed will have to raise rates again because the economy is going to rebound and there will be signs of inflation showing up,” said David Jones, an economist at Aubrey G. Lanston & Co.