The Federal Reserve kept interest rates unchanged on Wednesday (Oct. 25) for a third consecutive meeting, hoping that a slowing economy will dampen a worrisome rise in inflation.
The Associated Press reported that the Fed left its federal funds rate at 5.25%. It has been at that level since late June when the central bank raised rates for a 17th consecutive time in a two-year effort to combat rising inflation.
The decision to keep the funds rate unchanged means that the prime lending rate, the benchmark for millions of consumer and business loans, will remain at 8.25%.
Financial markets had widely expected no change in rates with investors believing that the central bank would want to avoid jolting markets just two weeks before the November congressional elections.
Fed Chairman Ben Bernanke and his colleagues paused for the first time in August as signs began to mount that the rise in interest rates was causing a significant decline in the once-booming housing market and also slowing consumer spending.
The Fed has now extended that pause for three straight meetings. Many economists believe Bernanke and his colleagues will leave rates unchanged for perhaps as long as a year as they watch to see whether the economy follows the Fed’s hoped-for scenario of slowing enough to cause inflation to retreat from current levels.
The decision by the Federal Open Market Committee (FOMC), composed of Fed board members and Fed regional bank presidents, was supported by a 10-1 vote.
Jeffrey Lacker, president of the Richmond Fed, dissented for the third consecutive time, arguing for another quarter-point rate hike to fight inflation.
The statement explaining Wednesday’s action was little changed from the comments the Fed made at the August and September meetings.
The Fed repeated worries about inflation, saying that readings on core inflation, which excludes energy and food, “have been elevated” and also saying that “the committee judges that some inflation risks remain.”
Those phrases are seen as signaling that unless inflation moderates further, the Fed is prepared to boost rates again.
The government reported last week that core inflation rose by 2.9% in September from year-ago levels. That is far above the Fed’s comfort zone of 1% to 2% price increases.
But the Fed statement also said that “inflation pressures seem likely to moderate over time” reflecting falling energy prices and the cumulative effects of the Fed’s previous rate hikes.