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Federal Reserve keeps key interest rate unchanged

WASHINGTON (AP) — Federal Reserve Chairman Alan Greenspan and his Federal Open Market Committee colleagues decided Tuesday to hold a key interest rate at 1.25 percent, a 41-year low, saying they would keep a close eye on economic developments surrounding the war.

The Fed's next scheduled meeting is May 6. Economists said if the economy were to flash new danger signs before then, Fed policymakers wouldn't hesitate to cut rates through an emergency telephone conference between Fed meetings.

The Fed's decision to hold its key interest rate at 1.25 percent means that commercial banks' prime lending rate — the benchmark for many consumer loans — also will remain at 4.25 percent, the lowest level since May 1959.

The last time the Fed's key interest rate — and thus the prime rate — was lowered was on Nov. 6. The Fed slashed short-term interest rates by a bold, half a percentage point, marking the 12th rate reduction since January 2001.