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Fed leaves rates alone
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August 18, 1998: 3:56 p.m. ET
FOMC adjourns meeting with no change in monetary policy; fed funds rate at 5.5%
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NEW YORK (CNNfn) - Amid an environment of low inflation and slowing domestic growth due to economic problems with trading partners in Asia, the U.S. Federal Reserve left short-term interest rates unchanged Tuesday.
The move leaves the target for the federal funds rate, which banks charge each other for overnight lending, at 5.5 percent and the discount rate, which the central banks charge money center banks, at 5.0 percent.
The announcement, which was widely expected and surprised very few economists if any, came at the conclusion of a nearly four-hour meeting by the Federal Open Market Committee (FOMC).
"I think the Fed pretty much played its card like we expected. They are still leaning toward a tightening phase," said John Wilson, chief economist at Bank of America.
Yet even though an increasing number of Fed-watchers believe central bankers have adopted a bias for raising interest rates, the economy has provided very little evidence to support a tightening policy.
Earlier Tuesday, the Labor Department reported that consumer prices climbed only 0.2 percent in July, meeting economists' modest forecasts.
With the most recent employment cost index report showing slight wage pressure, the FOMC will not have any reason to change current policy. But few pundits predicted that the Fed views the U.S. economy as a deflationary scenario, which can support an interest rate cut.
"Though there are some prices that are declining, in fact deflation means most prices are declining and there's very little evidence that is happening," said Rosanne Cahn, economist at CS First Boston. (255K WAV) (255K AIFF)
The FOMC is scheduled to re-convene Sept. 29. The Fed hasn't adjusted policy since March 1997, when it raised the federal funds rate by a quarter percentage point. The discount rate has stood at its present level since January 1996, when it was reduced by a quarter-point. 
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