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Fed Holds Steady, Cites Worries on Growth, Prices

By Reuters - Print this article Print

The 10-1 decision by the U.S. Federal Reserve leaves the benchmark federal funds rate target at a low 2 percent, where it has been since April.

WASHINGTON (Reuters) - The Federal Reserve held U.S. interest rates steady on Tuesday, expressing concerns on both economic growth and inflation and offering few clues as to when it might push borrowing costs higher.

The 10-1 decision by the U.S. central bank leaves the benchmark federal funds rate target at a low 2 percent, where it has been since April. The Fed had reduced rates by a cumulative 3.25 percentage points since mid-September in response to a sharp housing retrenchment and turmoil in credit markets.

"Although downside risks to growth remain, the upside risks to inflation are also of significant concern," the Fed said in a statement.

The announcement closely mirrored a statement issued after the Fed's last meeting in late June. However, the central bank omitted a phrase contained in the June statement that had said risks to growth appeared "to have diminished somewhat."

U.S. stocks added to earlier gains, while prices for U.S. government debt securities and the dollar slipped. U.S. short-term interest rate futures pared the implied prospects of rate hikes later this year.

Dallas Federal Reserve Bank President Richard Fisher dissented from the decision, preferring higher rates. It was Fisher's fifth straight dissent.

"If there is a subtle shift in the risk assessment it is that while acknowledging the downside risks to growth, it notes the upside risks to inflation 'are also (of) significant concern,'" Marc Chandler, global head of strategy at Brown Brothers Harriman in New York, said in a note to clients.

"This may have been a sufficient bone to the hawks to prevent others from joining Fisher in dissenting," he said.

This article was originally published on 2008-08-05
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