Fed Keeps Rates Steady

The Federal Reserve Chairman, Ben Bernanke and his colleagues have left the interest rates unchanged for the second time in succession. Last month also, the Fed voted to leave rates unchanged after raising them for 17 consecutive times over the past two years, the longest string of rate increases in Fed history. Economists are now wondering, whether the latest move represents a continued pause before more increases or a full stop.

The decision left the federal funds rate i.e. the intra bank interest rate, at 5.25 percent and the banks' prime lending rate, the benchmark for millions of consumer and business loans, at 8.25 percent.

The Fed's post-meeting statement reiterated its previous stance on the issue indicating that inflationary pressures could moderate over time, failing which the central bank was open to hike interest rates again.

Several market observers expect that the next Fed move will be to cut rates, possibly as early as next spring, in response to a slowing economy and falling inflation pressures. Steve Van Order, chief fixed income strategist with Calvert Funds in Bethesda said, “The market is betting on the economy slowing enough for the Fed to cut rates but we don't see anything in the immediate future to indicate that."

The Federal Bank admitted that it was now more concerned about the slowing economy than inflation. In a statement it said, “The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market….inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions."

The Fed has had a hard job trying to slow the economy enough to keep inflation under control without killing off growth. Some analysts say the Fed may already have raised rates too far, setting the stage for much slower growth, or even a recession, especially with the housing market slowing.