fed holds interest rates steady

THE FED
Fed holds interest rates steady
Policy-makers only tweak policy statement
By Greg Robb, MarketWatch
Last Update: 3:42 PM ET May 9, 2007


WASHINGTON (MarketWatch) -- The Federal Reserve decided Wednesday to hold short-term interest rates steady and said nothing that indicates it is prepared to move interest rates anytime soon.
Following a one-day meeting of the Fed's policy-making Open Market Committee, the central bank indicated that its target for the key federal-funds interest rates, at which banks lend each other money overnight, remains 5.25%.
The vote to hold rates steady was 10-0.
In its policy statement, the Fed repeated the key statement that it could choose to move rates in either direction depending on the data even though inflation risks remain the paramount concern.
The Fed made only a few changes from its March 21 statement.
In a nod to the weak first quarter growth rate, the Fed said growth had slowed, and adjustments in housing were ongoing. The last statement had said recent indicators were "mixed."
But the Fed repeated that its outlook for a second half pickup remains on track.
"Nevertheless, the economy seems likely to expand at a moderate pace over coming quarters," the statement said.
The Fed made no changes to its inflation outlook, saying that core inflation remains "somewhat elevated" and "although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures."
"It is kind of a yawner," said Dan Seto, economist with Sumitomo Bank. "There were minimal changes [to the statement] and none are significant," he said.
Wall Street had concluded that the Fed wouldn't make a move Wednesday and there was not much reaction in the stock market. Read Market Snapshot.
"No one is really surprised," said Jay Suskind, director of trading at Ryan Beck & Co. "The market whisper was that they would show more concern about inflation."
"The market rallied back up because the flipside is that this means the economy is doing well enough and earnings will stay strong," Suskind said.
As usual, economists disagreed about what the statement's details reveal.
Some analysts had expected the Fed to tip its hat to the recent good news on inflation, so the fact that the Fed stuck to language that inflation was "elevated" was seen as hawkish.
Others said the Fed was dovish and the language saying growth has slowed was a baby-step toward an eventual ease.
Mike Moran, chief U.S. economist at Daiwa Securities, said the Fed did not intend to make any policy hints with the changes to the statement. He said the central bank simply recognized the slower growth.
"My view the Fed will be on hold steady through the rest of the year," Moran said.
The Fed hasn't made a move since last August, when it completed an unprecedented series of seventeen straight one-fourth-of-a-percentage-point rate hikes. See MarketWatch's complete Fed coverage.
Many Fed watchers on Wall Street expect rates to remain unchanged at least through midyear and maybe much longer.