Fed Holds Interest Rates Steady Despite Inflation

Washington, DC, Aug. 5, 2008--The Federal Reserve decided Tuesday not to raise a key interest rate, indicating its deeper concern about a weak economy than rising inflation.

The federal funds rate, which affects the cost of an array of consumer-credit purchases, including mortgages and car loans, will remain at 2 percent.

It was the second consecutive time that the Federal Open Market Committee left the rate unchanged, which it also did in June. Before that, the Fed had cut rates seven times between last September and May of this year, sparking fears of inflation.

Given the economy's fragile state, the no-change option was the best, said Ken Goldstein, economist for the Conference Board, a Manhattan business research group.

"The economy is simply too weak to withstand a rate increase," he said.

In a statement released after its meeting yesterday, the Fed committee noted that "labor markets have softened further and financial markets remain under considerable stress."

Goldstein said that the recent slowing of the rise in prices for fuel and commodities had eased fears about inflation, somewhat.

"At least it's not going to be as steady a run-up as it looked for so long," he said.

The Fed is scheduled to meet again next month and Goldstein predicts it will continue to hold steady on interest rates so close to the presidential election in November.