Wednesday, August 6, 2008

Federal Reserve leaves interest rate at 2 percent

WASHINGTON — Federal Reserve policymakers on Tuesday left interest rates unchanged and stressed that they're concerned about the struggling economy and high inflation, suggesting that they're unlikely to change rates soon.

In a 10-1 decision, Fed policymakers left at 2 percent their target for short-term interest rates, which influence the cost of borrowing to buy everything from cars to condos.


The Fed has kept the rate, the lowest since late 2004, unchanged since April, after cutting it from 5.25 percent in less than seven months.

In their post-meeting statement, Fed Chairman Ben Bernanke and his colleagues said the job market has weakened, financial markets are "under considerable stress," and tight credit, the housing slump and high energy costs are "likely to weigh on economic growth over the next few quarters."

At the same time, the Fed said the outlook for prices is "highly uncertain" and inflation is a "significant concern."

Such dueling worries suggest that the Fed does not plan to raise or lower rates in coming months.

The Fed typically cuts interest rates to boost the economy and raises them to halt inflation.

"They really went right down the middle," said U.S. Global Investors Research Director John Derrick. "They are basically in risk-assessment mode."

Investors in a market in which participants bet on future Fed moves expect U.S. central bankers will remain on hold through 2008.

There has been some good news this week on inflation. Oil prices on Tuesday fell $2.24 to $119.17, the lowest since May 2.

The U.S. average price of a gallon of regular gas was $3.871, down a penny from Monday and 24 cents lower than the record hit July 17, according to motor club AAA.

Oil prices still are up 65 percent from a year ago, and prices for other items have also been rising.

Such inflation concerns, along with tight credit, have kept borrowing rates, such as mortgages, elevated.




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