Fed Ends Streak of Seven Straight Rate Cuts

June 25, 2008— -- The Federal Reserve by a 9-to-1 vote this afternoon left interest rates at current levels, putting an end to seven consecutive rate cuts.

Since September, the central bank has been aggressively cutting its key Fed Funds interest rate to stimulate an economy hammered by a collapsing housing market and the tightening of credit. Rates now stand at 2 percent, down from 5.25 in September.

The Fed faces a conflicting mandate of keeping rates low enough to stimulate growth in the economy but not so low that inflation gets out of control.

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For months, Fed Chairman Ben Bernanke and the other members of the bank's open market committee, have focused on growth. But now many Fed watchers are saying that focus is shifting to inflation.

So to reach that balance, the central bank decided -- for now -- to leave rates where they are.

"Recent information indicates that overall economic activity continues to expand, partly reflecting some firming in household spending," the Fed said in its statement. "However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters.

One member of the rate-setting committee, Richard W. Fisher, voted against the decision preferring instead to increase the rate now.

In its statement, the Fed committee said it expects inflation to moderate later this year and next year but warns that there is high uncertainly in such a prediction because of the high increases in energy and some commodity prices.

Since the Fed last met in April, the outlook for the growth has gotten better and the outlook for inflation has gotten a bit worse, said David Wyss, chief economist for Standard & Poor's.

But still, Wyss said, "I don't think we are out of the woods yet on the recession side."

Inflation is climbing, mainly driven by food and energy prices.