The Fed Holds the Line

WASHINGTON, D.C.: The Federal Reserve has decided not to cut short-term interest rates based on evidence that the U.S. economy remains locked in a steady 2.5 percent growth rate. Weeks earlier, Fed Chairman Alan Greenspan sent markets into a brief freefall when he suggested that a stronger-than-expected economy might cause the central bank to hold the line on rates. But Wall Street shrugged off Tuesday's announcement, with the Dow finishing the day up slightly. "Most experts expected this," says TIME business writer John Greenwald. "The Fed is very happy with an economy with moderate growth rate and close to full employment. And in an election year, it's not likely that the Fed will take any more action before November 5." For President Clinton, though, the move comes as a disappointment. Seeking to prod growth to help his re-election campaign, Clinton has pushed hard for a lowering of rates, calling for a national conversation on how fast the economy can safely grow. The President had also sought to appoint pro-growth New York investment banker Felix Rohatyn to the Fed board, only to see the nomination scuttled by Senate Republicans pleased with Greenspan's record of maintaining a steady, albeit slow-growing, economy. Despite Clinton's reservations, Greenspan is expected to be confirmed easily at Senate hearings Wednesday for a third four-year term.