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Inflation-Wary Fed Leaves Rate Alone
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Overall annual inflation, by the Commerce Department's estimate, was 2.2 percent in April, down from 2.3 percent in March.
The Fed committee, as widely expected, voted unanimously to leave its key short-term interest rate at 5.25 percent, where it has been for a year. Many analysts predict the rate will remain on hold through the rest of the year.
The central bank does not want to raise interest rates while the housing slump continues but doesn't want to cut rates while inflation remains a problem.
Mortgage rates, which are influenced by the Fed but determined by financial markets, are slightly lower than they were a year ago. The average rate on a 30-year, fixed-rate mortgage was 6.67 percent this week, down slightly from the week before, and less than the 6.78 percent level of this week last year, Freddie Mac reported yesterday.
The economy slowed sharply in the first three months of the year, expanding at a 0.7 percent annual rate, the slowest pace in four years, the Commerce Department said yesterday, revising its earlier estimate slightly higher. Much of that weakness stemmed from falling home construction, but some also reflected slower growth in exports and cautious business spending.
Since then, other figures on trade, retail sales and business spending show economic growth quickened in the April through June quarter, expanding at a 3 percent annual rate, close to its long-term average trend, according to private estimates.
The central bankers' statement predicted continued "moderate" growth in coming months.
The Fed statement also reflects Bernanke's efforts to prod the markets to focus less on where the economy has been and more on where it is headed. That will provide a better guide to future central bank policy.
"They're saying, 'Looking backward, we've seen modest improvement.' Looking forward, they are not clearly convinced that improvement can continue," Hoffman said.
