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Interest rates: Fed signals it will take further steps if needed

Interest rates will stay low and the Federal Reserve signals it would take further steps to boost the economy if growth slows.

By Jeannine AversaAssociated Press / September 21, 2010

Two television networks, seen in the Goldman Sachs cubicle on the floor of the New York Stock Exchange, broadcast the news that the Federal Reserve had left interest rates unchanged in their Sept. 21 meeting in New York, their last scheduled meeting before the mid-term elections. Stock prices, which had been relatively flat before the Fed's statement, rose afterward but the value of the dollar slumped.

Henny Ray Abrams/AP

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WASHINGTON

The Federal Reserve signaled Tuesday that it is worried about the weakness of the recovery and is ready to take further steps to boost the economy if needed.

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Fed officials said they are also concerned that sluggish economic growth could prevent prices from rising at a healthy rate.

But at the end of its meeting, the Fed held off on taking any new steps to rejuvenate the economy and drive down unemployment. Instead, it left interest rates unchanged and hinted that it is prepared to see if the economy can heal on its own.

Stock prices, which had been relatively flat before the Fed's statement, rose afterward. The Dow Jones industrial average was up nearly 60 points minutes shortly after.

The meeting is the Fed's last before the Nov. 2 elections, and it comes as voters are focused on the economy and the jobs crisis. Polls show they are inclined to punish Democrats in Washington for the sluggish economy.

The Fed used the same language it did in August to sketch a downbeat view of the economy. It concluded that economic activity has slowed in recent months. And it warned that the pace of growth is likely to be "modest in the near term," almost identical to the assessment the Fed made a month ago.

But the Fed delivered a stronger signal that it would take new steps to help the economy. The Fed said it is "prepared to provide additional accommodation." In its previous policy statements, the Fed didn't go that far. Instead, it had said it will "employ its policy tools as necessary."

The Fed said it is more worried about prices falling than rising because the economy is so weak. The Fed didn't use the word deflation. But some economists have raised concerns about the country sliding into a deflationary spiral. That's a widespread drop in wages, prices of goods and services and the value of stocks and homes.

For the sixth straight meeting, Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, was the sole dissenter.