Fed Maintains Base Rate At 5.25%

May 9, 2007
Concerned about inflation pressures

The U.S. Federal Reserve decided May 9 to keep its base interest rate steady at 5.25%, while noting that inflation remains the "predominant policy concern," a central bank statement said. The central bank had been widely expected to make no change in interest rates because of strong inflation pressures despite sluggish economic growth.

"Economic growth slowed in the first part of this year and the adjustment in the housing sector is ongoing," the central bank's Federal Open Market Committee said. "Nevertheless, the economy seems likely to expand at a moderate pace over coming quarters."

The FOMC repeated its concern about inflation, saying that "core" price pressures excluding food and energy were "somewhat elevated" but "seem likely to moderate over time."

The statement added that a key risk is that "the high level of resource utilization has the potential to sustain those pressures," a reference to tight labor market conditions.

The central bank headed by Ben Bernanke has been struggling to find the right balance of monetary policy with the economy having slowed to a crawl even though inflation has remained uncomfortably high. Some analysts had predicted the panel would be cautious about any changes to their statement after a March communique led financial markets to interpret a shift in policy. Some analysts were holding out hope that the Fed would open the door to a rate cut sometime this year following surprisingly sluggish data: gross domestic product (GDP) growth for the first quarter was a tepid 1.3%, and April produced a net gain of just 88,000 new payroll jobs.

Copyright Agence France-Presse, 2007

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