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Fed Holds Key Interest Rate Steady

September 16, 2003

WASHINGTON (AP) _The Federal Reserve held a main short-term interest rate at a 45-year low Tuesday amid signs that the economy is getting on firmer footing after months of wobbling.

Fed Chairman Alan Greenspan and his Federal Open Market Committee colleagues _ the group that sets interest rate policy in the United States _ kept the federal funds rate at 1 percent. The funds rate, the interest banks charge each other on overnight loans, is the Fed’s primary tool for influencing the economy.

The Fed said that currently low short-term interest rates ``can be maintained for a considerable period.″

Some economists believe the Fed will hold the funds rates steady at it next meeting on Oct. 28 and through the rest of this year.

Currently low rates are ``providing important ongoing support to economic activity,″ the Fed said.

Holding the funds rate steady means that commercial banks’ prime lending rate for many short-term consumer and business loans will remain at 4 percent, the lowest level since 1959. Any changes to the funds rate affects the prime lending rate.

Maintaining a climate of near rock-bottom short-term borrowing costs may make consumers and businesses feel more inclined to step up spending and investment, which would spur economic growth.

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