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Fed leaves rates as is

U.S. economy inched up a bit in 4th quarter

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WASHINGTON — As signs of an economic rebound mount, the Federal Reserve left interest rates unchanged Wednesday, ending a yearlong stretch of uninterrupted credit easing.

Many economists believe the 11 interest-rate cuts by the Fed last year, which pushed a key interest rate to its lowest point in four decades, will pave the way for the economy to return to a healthy rate of growth in the second half of this year.

"I think the Fed is comfortable enough now to sit on its hands and not move," said economist Clifford Waldman of Waldman Associates.

There are already signs that the economy, which slid into a recession in March, may be seeing better days ahead, analysts said.

The U.S. economy, defying predictions of another negative quarter, managed to eke out a 0.2 percent rate of growth in the final three months of last year, with most of the strength coming from brisk spending by consumers and government, the Commerce Department reported Wednesday.


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The small increase in the broadest measure of the economy, the gross domestic product, could mean that economists will date the end of the recession around the end of last year or the beginning of this year.

Many economists were predicting that the economy, which shrank at a rate of 1.3 percent in the third quarter, would decline again at a rate of around 1 percent in the fourth quarter.

However, Wall Street investors weren't inspired by the small gain. The Dow Jones industrial average was up 20 points, but the Nasdaq was off 13 in afternoon trading.

If the fourth-quarter GDP, the total output of goods and services, remains positive in upcoming monthly revisions, it will mean that this recession had only one negative quarter when output contracted. It dropped at an annual rate of 1.3 percent in the July-September quarter.

President Bush called the GDP gain a positive sign but warned that the country could not take continued growth and job creation for granted. He repeated the call made Tuesday night for Congress to quickly pass his economic stimulus plan.

At a separate briefing, Treasury Secretary Paul O'Neill and Commerce Secretary Don Evans refused to declare the recession at an end. But O'Neill forecast even stronger growth in the current quarter and reminded reporters that he had said in October that the fourth quarter might turn out to be positive.

David Wyss, chief economist at Standard & Poor's in New York, said that based on the current GDP figures, "This will be the mildest recession in postwar history."

If Friday's unemployment report shows business payrolls stopped contracting and grew in January, he said, the National Bureau of Economic Research may well end up declaring that the recession ended in December. That would mean the downturn lasted nine months, two months shorter than the average in the post-World War II period.In November, the NBER declared that the recession had begun in March.

Based on the current GDP data, total output will have declined by 0.3 percent, the smallest drop in GDP during a recession in postwar history.