Fed leaves rates, sees improving economy

? The Federal Reserve left a key interest rate at a 45-year low on Tuesday and pledged anew to keep rates down for a “considerable period.”

However, Wall Street investors didn’t like hints from the Fed that the period of easy money may be drawing to a close, even if the first rate hikes are still months away.

The Dow Jones industrial average, which in early trading crossed the psychologically important 10,000-point level for the first time in 18 months, lost altitude after the Fed’s afternoon announcement and finished the day at 9,923, down 41 points for the day.

The Fed in its statement said that it was leaving the federal funds rate, the interest that banks charge on overnight loans, at 1 percent, where it has been since the last rate change, a quarter-point cut last June.

What caught investors’ attention was that the statement released at the Fed’s final meeting of the year struck a noticeably more upbeat tone about economic prospects than it had in recent months, suggesting that the policy-makers’ three-year period of monetary easing may be nearing an end.

The Fed noted that the economy was expanding briskly, reflecting the torrid 8.2 percent growth rate turned in for the July-September quarter. The Fed also said the labor market “appears to be improving modestly.”

The more upbeat comments about the economy and the diminished worries about falling inflation led analysts to believe that while an actual Fed interest rate increase is still some months away, the central bank is beginning to prepare the markets for such a move.

“The Fed is definitely stepping in the direction of preparing the market for an eventual tightening of monetary policy,” said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis.

Trader Daniel Burke reacts to the announcement that interest rates will remain at a 45-year low. He was working Tuesday at the Chicago Mercantile Exchange.