FED LEAVES RATES ALONE : BOND MARKET WELCOMES NEWS.Byline: David E. Sanger David E. Sanger — born on July 5, 1960 in White Plains, New York — is White House correspondent for The New York Times. A 1982 graduate of Harvard College, Sanger has been writing for The New York Times The New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of Times After weeks of speculation that the Federal Reserve would launch a pre-emptive strike Noun 1. pre-emptive strike - a surprise attack that is launched in order to prevent the enemy from doing it to you coup de main, surprise attack - an attack without warning against inflation, it decided against raising interest rates Tuesday, apparently in the belief that the economy is likely to cool off enough to keep prices in check. The federal funds rate Federal Funds Rate The interest rate at which a depository institution lends immediately available funds (balances at the Federal Reserve) to another depository institution overnight. , which banks charge each other for overnight loans, remains at 5.25 percent and the discount rate stays at 5 percent - the same level they've been at for 19 months. The stock market soared briefly on the news. But after the early afternoon rally, the Dow closed down 20.71 at 5,874.03. The bond market rallied with strong demand pushing the yield on the benchmark 30-year Treasury down to 6.99 percent. Following its tradition, the Fed gave no explanation why it chose not to act. And that silence concealed what appears to be a sharp split within its powerful Open Market Committee. In an unusual news leak Noun 1. news leak - unauthorized (especially deliberate) disclosure of confidential information leak disclosure, revealing, revelation - the speech act of making something evident , Reuters news agency reported last week that eight of the 12 presidents of the regional Federal Reserve Banks were urging an increase in rates. That leak was seen as something of a public challenge to Fed Chairman Alan Greenspan Alan Greenspan Dr. Greenspan is Chairman of the Board of Governors of the Federal Reserve System. Dr. Greenspan also serves as Chairman of the Federal Open Market Committee (FOMC), the Fed's principal monetary policymaking body. . He asked the FBI to look into the leak. But more important, in refusing to act Tuesday, he appeared to demonstrate his power to stamp down Verb 1. stamp down - to put down by force or authority; "suppress a nascent uprising"; "stamp down on littering"; "conquer one's desires" conquer, inhibit, suppress, subdue, curb blink away, blink, wink - force to go away by blinking; "blink away tears" any effort by the regional bank presidents to mount a threat to his own authority. Some analysts also contended Tuesday that Greenspan was reluctant to raise rates this close to an election. Such increases have occurred only twice, most recently before the 1980 presidential election. Whether that consideration was a factor Tuesday, President Clinton was clearly happy with what had happened. ``I just think it shows we've got a strong economy with no inflation,'' he said. ``I'm glad about that.'' Republican challenger Bob Dole said only, ``Interest rates are higher in every category under Bill Clinton.'' The statistical evidence that the Fed had to work with pointed in different directions. Poor retail sales numbers for the summer suggested that the economy was slowing, but some experts suspect those figures will be revised upward in coming months. Job growth has been robust, but the numbers for the summer are not always reliable because of the waves of young people moving in and out of the labor force. |
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