Fed won't change short-term rates

WASHINGTON --Federal Reserve policy-makers decided to hold short-term interest rates at 40-year lows Wednesday amid a spotty recovery, a slide in the stock market and a drop in Americans' confidence in the economy.

For the fourth time this year, Federal Reserve Chairman Alan Greenspan and his Federal Open Market Committee colleagues left the federal funds rate -- the interest that banks charge each other on overnight loans -- at 1.75 percent, the lowest level in four decades.

The policy-makers, who slashed interest rates 11 times last year to rescue the economy from recession, have not changed the funds rate since December.

With rates at this low level, consumers might be motivated to spend more and businesses motivated to boost investment in new plants and equipment. Both are crucial ingredients in helping the economic recovery.

Economic growth is continuing to increase but strength in consumer and business demand appears to have moderated, the Fed said in a statement issued after a two-day meeting.

The policy-makers said they expect demand "to pick up over coming quarters ... but the degree of the strengthening remains uncertain."

The decision means the prime lending rate -- a benchmark for many consumer and business loans -- will remain at 4.75 percent, the lowest level since November 1965.

Range of predictions

Economists offered a range of predictions about the Fed's next step. But they were all worried about possible economic fallout and a crisis of confidence among investors, consumers and businesses related to the startling stream of accounting scandals. The latest one involving telecommunications giant WorldCom rocked financial markets Wednesday.

On Wall Street, the Dow Jones industrial average, which had fallen as much as 200.25 points, managed a late rebound. The index closed down just 6.71 points, at 9,120.11. The Dow had dropped 155 points Tuesday, its fourth triple-digit loss in five sessions.

The accounting scandals and worries about jobs helped to push Americans' confidence in the economy down in June to a four-month low.