Feds Leave Interest Rates
March 21,2007— -- The Federal Reserve this afternoon once again decided to leave interest rates unchanged but warned that its No. 1 short-term concern is inflation, an indicator that the central bank might be likely to raise rates in the coming months.
As it wrapped up a two-day meeting, the Fed said in a statement that its "predominant policy concern remains the risk that inflation will fail to moderate as expected."
However, the bank did make it clear that it still believes that inflationary pressures will "moderate over time," a phrase taken from its last statement in January.
Recent problems uncovered with the subprime lending market have led the Fed to change its statement on the housing market from "some tentative signs of stabilization" in January to today's comment that a sector adjustment is "ongoing."
"Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters," the central bank said.
As a result, at this point, most people can except to see little -- if any -- interest rate changes in savings accounts, credit cards or mortgages.
The Federal Open Markets Committee meets eight times a year to set the key interest rate banks charge one another for overnight loans, known as the federal funds rate.
The Fed governors use the rate as a way to try to keep the economy balanced -- and growing at a sustainable pace -- while keeping prices from going up too fast. Several economists said that -- at this point -- it is too risky for the Fed to raise or even lower the rate.
Robert A. Brusca, who runs his own economic consulting firm, Fact and Opinion Economics, said growth is relatively flat while inflation is above the bank's comfort zone and getting further out of that zone.
"Why make a decision that could go in the wrong direction?" Brusca said. "It makes more sense to wait it out."
Today's vote by the central bank leaves the Fed rate at 5.25 percent -- the sixth straight meeting with no change. The benchmark rate was last changed on June 29 -- the final of 17 consecutive quarter-point hikes. The Fed plans to meet next on May 9.
"Inflation is staying stubbornly high, at least higher than the Fed is comfortable with," said Joel Naroff, chief economist for Commerce Bank and president of Naroff Economic Advisors. "That is the key reason at this point" for Fed not to lower rates.
Prices have risen 2.4 percent over last year, according to the latest Consumer Price Index figures, a common measure of inflation.
In the last seven weeks alone, gasoline prices have spiked 41 cents a gallon. An ABC News/Washington Post consumer confidence survey this week matched its biggest one-week drop in its two-decade history, and gas prices are considered the likely cause.
The survey also found that 49 percent of respondents now say they believe the national economy is getting worse, up from 41 percent last month and 34 percent in January.
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