Fed Expected to Keep Interest Rates Level

Federal Reserve officials are expected to hold interest rates steady at 40-year lows when they meet this week as concerns linger over the health of the U.S. recovery despite signs of solid economic growth.

Many economists believe that the U.S. economy will post a respectable annual growth rate of well over 3% for the quarter ending this month. But that growth reflects a burst of consumer spending that some worry may not last.

Though consumers have been spending freely, businesses show no signs of loosening their belts.

“Whatever kick you get from the consumer side doesn’t seem to create any momentum in the economy because businesses are just not responding,” said Ethan Harris, chief economist at Lehman Bros.

Fed chief Alan Greenspan and his fellow policymakers on the central bank’s Federal Open Market Committee are expected to hold interest rates steady when policymakers meet Tuesday, although Harris thinks they eventually will be forced to lower them again.

The benchmark overnight lending rate has remained at 1.75% since December, a level reached after 11 Fed rate cuts.

None of the 22 large Wall Street firms that deal directly with the Fed in the markets expect a rate change at Tuesday’s meeting. But a Reuters survey found six of the so-called primary dealers clinging to predictions of a rate cut by the end of the year.