MercoPress. South Atlantic News Agency

Fed leaves rates unchanged but “inflation risks remain”

The Federal Open Market Committee decided Wednesday to keep the key interest rate unchanged at 5.25% reflecting the reduced impetus from energy prices and contained inflation expectations.

In a brief statement from Federal Reserve chairman Ben Bernanke and his colleagues, greatly anticipated by money markets, the FOMC said that the moderation in economic growth "appears to be continuing, partly reflecting a cooling of the housing market".

The decision to leave rates unchanged is in line with recent favourable developments on inflation: oil prices have fallen by more than 20% over the past two months and a cooling housing market has contributed to a slowdown in overall growth.

The Fed also had left rates unchanged at its last meeting in August, breaking a record string of 17 rate hikes that had driven the funds rate to its highest level in more than five years.

But the Fed was also cautious about the future admitting that some inflation risks remain, "readings on core inflation have been elevated and the high levels of resource utilization and of energy prices and other commodities have the potential to sustain inflation pressures. However, 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 and other factors restraining aggregate demand".

But the extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information. The FOMC is scheduled to meet again next October 24/25.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack Guynn; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred an increase of 25 basis points in the federal funds rate target at Wednesday's meeting.