WASHINGTON - Faced with an economy finely balanced between exuberant consumers and cautious corporations, Federal Reserve policy-makers were expected to keep U.S. interest rates on hold on Tuesday. The U.S. central bank's Federal Open Market Committee was scheduled to begin meeting at 9 a.m. to consider interest-rate strategy and to announce a decision around 2:15 p.m. There was scant suspense about the outcome on Wall Street, where analysts said the fragile recovery from last year's recession meant there was good reason to keep rates at current stimulative 40-year lows -- but that there was not enough hard evidence to warrant adding to last year's 11 rate reductions.
"We're in a kind of economic limbo here," said Bob Gay, an economist with Commerzbank Securities in New York. He noted that corporations were strongly focused on reducing hefty debt loads but consumers kept spending and incomes were rising.
U.S. equities are suffering the worst bear market in 60 years as earnings worries and concern about a possible war with Iraq weigh heavy and stock market declines could ultimately take a bite out of consumer spending. Still, consumers have seemed undaunted thus far.
Recent data have painted a mixed -- occasionally perplexing -- picture of the economy. New-car sales have zoomed ahead at a near-record pace, fueled by cheap financing, but the New York-based Conference Board said on Monday its index of leading indicators fell for a third straight month in August in a portent of lackluster growth down the road.
Robust spending guarantees a healthy rate of advance in gross domestic product during the third quarter, since consumers account for two-thirds of national economic activity, but other sectors have not displayed matching strength. //