As most market analysts expected, the Federal Reserve decided today (Nov. 15) to leave interest rates unchanged, although it remains worried about inflation.
Consequently, The Fed said it is more inclined to raise interest rates in the near future, than to lower them.
The Fed is worried about inflation because labor markets remain tight and “the increase in energy prices, though having limited effect on core measures of prices to date, still harbors the possibility of raising inflation expectations.”
Although The Fed believes the economy is cooling off, it has not cooled off enough to tip the balance in favor of lowering rates.
The Fed decided today to keep the federal funds rate at 6.5%, which has yielded a benchmark prime interest rate of 9.5% since mid-May.
Analysts generally assumed The Fed would leave rates unchanged due to the uncertainty over the outcome of the presidential election. Raising rates now would create too much financial market turmoil, most observers believe.
At least one economist, Morton Marcus of Indiana University, believes The Fed will raise rates again early next year because Marcus feels both George W. Bush and Vice President Al Gore are advocating policies that would accelerate the rate of inflation.