Washington ? With looming war making economic forecasting unusually difficult, the Federal Reserve decided Tuesday to leave interest rates unchanged at a 41-year low.

Federal Reserve Chairman Alan Greenspan and his colleagues held out the prospect, however, that they would move quickly to cut rates if fallout from military conflict should threaten to push the country back into recession.

The Fed’s decision to leave its target for the federal funds rate unchanged at 1.25 percent disappointed investors who had been hoping the Fed would cut rates again, driving the funds rate to 1 percent or lower, a level last seen when Dwight Eisenhower was president.

Stocks, surging in recent days over hopes of a quick and successful war against Iraq and a possible Fed rate cut, momentarily lost altitude after the Fed’s afternoon announcement.

Many investors had been hoping that if the Fed did not cut rates, it would at least change the portion of its statement designed to foreshadow future moves. They had expected a move from a statement that risks were equally balanced between inflation and economic weakness to a statement that cited economic weakness as the greater threat.

Workers on the floor of the New York Stock Exchange receive news about the Federal Reserve's decision to leave interest rates unchanged. Tuesday's decision by Fed Chairman Alan Greenspan and his Federal Open Market Committee colleagues means the federal funds rate will stay at 1.25 percent.

Instead, for the first time since it began releasing a “balance of risks” assessment in early 2000, the Fed said the “unusually large uncertainties clouding the geopolitical situation” made it impossible to determine where the risks stood.

The 12-member Federal Open Market Committee, composed of Fed board members and regional Fed bank presidents, said it would engage in “heightened surveillance” of economic developments in coming weeks, a phrase analysts read as a clear signal that the central bank won’t wait until its next meeting May 6 to cut rates further if necessary.