US holds rates and vows to keep them low

The Federal Reserve yesterday held its benchmark short-term interest rate at its current historic low, and dropped a strong hint it would stay that way in the near term.

At its last scheduled session of 2003, the policy making Federal Open Market Committee left the federal funds rate, at which the US central bank makes overnight funds available to commercial banks, at 1 per cent, its lowest since the late 1950s.

But to the surprise of some, the committee did not signal that an increase might come at its next meeting, on 27 and 28 January next year. The economy "is expanding briskly", the keenly watched FOMC statement said, noting that the risk of deflation, "the probability of an unwelcome fall in inflation," had "diminished in recent months".

Despite the shift in language, the FOMC declared that current policies could be sustained "for a considerable period" ­ a formulation indicating the central bank sees no near-term reason to nudge rates higher, despite the recent weakness of the dollar.

After the Fed announcement, the Dow flirted with the 10,000 mark, which it briefly crossed earlier in the day but closed down 41.85 at 9,923.42.