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Fed leaves interest rates alone

Federal Reserve Chairman Alan Greenspan and his colleagues suggest that large uncertainties surrounding the Iraq situation make economic analysis tricky.

The Federal Reserve left interest rates alone Tuesday, betting that the geopolitical situation will become more certain and the economic climate will improve over time.

Still, leaders of the central bank acknowledged in a statement that "recent labor market indicators have proven disappointing." Fed Chairman Alan Greenspan and his colleagues suggested President Bush's ultimatum to Saddam Hussein that he leave Iraq by Wednesday evening makes economic analysis tricky.

Members of the Federal Open Market Committee declined to assess the balance of risks related to their twin goals of stable prices and sustainable growth in "light of the unusually large uncertainties clouding the geopolitical situation in the short run and their apparent effects on economic decision-making."

The committee kept its target for the federal funds rate at 1.25 percent. The federal funds rate is the interest rate that banks with excess reserves at a Federal Reserve district bank charge other banks that need overnight loans, and it often points to the direction of U.S. interest rates.

The central bank has lowered its target for the federal funds rate on numerous occasions in the past two years to help the U.S. economy recover from its slump. Signs of economic trouble continue to emerge, however, including a March 7 report that nonfarm payroll employment fell by 308,000 jobs in February. Looming war in Iraq and possible upheaval in the Middle East or additional terrorist attacks also threaten to derail commerce.

But Fed leaders, without mentioning the conflict with Iraq, implied a resolution of the situation and improving productivity would boost the economy.

The "hesitancy of the economic expansion appears to owe importantly to oil price premiums and other aspects of geopolitical uncertainties," the committee said in a statement. "The committee believes that as those uncertainties lift, as most analysts expect, the accommodative stance of monetary policy, coupled with ongoing growth in productivity, will provide support to economic activity sufficient to engender an improving economic climate over time."