Fed Holds Base Rate Steady At 5.25%

March 21, 2007
Markets stay where they have been since June.

Saying the latest indicators on the U.S. economy were "mixed," the Federal Reserve held its base interest rate steady March 21 at 5.25%. The unanimous decision, widely expected by economists and financial markets, leaves the federal funds rate where it has been since last June.

"Recent indicators have been mixed and the adjustment in the housing sector is ongoing," the Federal Open Market Committee said. "Nevertheless, the economy seems likely to continue to expand at a moderate pace over the coming quarters."

The Fed statement said inflation pressures have been "somewhat elevated" but "seem likely to moderate over time." However, the Fed said the "high level of resource utilization has the potential to sustain those (inflation) pressures."

The statement noted that under these circumstances, "the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected."

The redraft of the Fed's policy statement to reflect the latest economic developments made no specific mention of what some see as an emerging crisis in the "subprime" mortgage sector, the riskiest segment of the housing market.

It differed from the January 31 statement by removing a reference to a possible "additional firming," or hike in rates. Instead, the FOMC said, "Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information."

Copyright Agence France-Presse, 2007

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