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The Honolulu Advertiser

Posted at 8:27 a.m., Tuesday, August 7, 2007

Fed leaves key interest rate unchanged at 5.25%

By MARTIN CRUTSINGER
Associated Press Economics Writer

WASHINGTON — The Federal Reserve left a key interest rate unchanged on Tuesday as worries about inflation trumped concerns about turbulent financial markets.

Fed Chairman Ben Bernanke and his colleagues voted unanimously to keep their target for the federal funds rate, the interest that banks charge each other, at 5.25 percent, where it has been for more than a year.

The Fed decision came after a volatile couple of weeks on Wall Street as investors have been beset by troubles in global credit markets stemming from a sharp rise in defaults on subprime mortgages.

In a brief statement, the Fed acknowledged the turbulence and said the downside risks to the economy had "increased somewhat."

But the Fed continued to state that the predominant risk remained that inflation "will fail to moderate as expected."

Many analysts believe the Fed will remain on hold through the rest of this year, preferring to watch and make sure that inflation moderates back to an acceptable level.

Tuesday marked the ninth consecutive meeting where the Fed has left its key policy lever unchanged. The last rate move was a quarter-point increase, the 17th in a row, on June 29, 2006. That capped a two-year campaign that pushed the funds rate from a 46-year low of 1 percent to its current level in a bid to slow the economy enough to keep inflation under control.

The decision to leave rates unchanged means that banks' prime lending rate, the benchmark for millions of consumer and business loans, will remain where it has been for the past year at 8.25 percent.