FOMC Worries About Weakness, Deflation

By John S. McClenahen From now presumably until the end of June, when the rate-setting Federal Open Market Committee (FOMC) is next slated to meet, the target for the influential federal funds rate, the interest banks charge each other for overnight loans, will remain at 1.25%. "Although the timing and extent of [an] improvement [in the U.S. economy] remain uncertain, the committee perceives that over the next few quarters the upside and downside risks to the attainment of sustainable growth are roughly equal," the FOMC said in a statement following its May 6 meeting in Washington, D.C. However, between now and the end of June the 12 members of the FOMC will be keeping close watch on the economy for signs of falling prices. During the months ahead, "the probability of an unwelcome substantial fall in inflation, though minor, exceeds that of a pickup in inflation from its already low level," the FOMC said. The bottom line: The chances of the U.S. having an even weaker economy are greater than it experiencing growth with inflation.

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