Federal Reserve Leaves Interest Rates Unchanged as Inflationary Pressures Diminish

The Federal Reserve left a key interest rate unchanged Wednesday as slipping oil prices in recent months have helped to ease inflationary pressures in the U.S. economy.

Federal Reserve Chairman Ben Bernanke and his colleagues issued a brief announcement saying they would leave the federal funds rate, the interest that banks charge each other, at 5.25 percent.

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Financial markets had widely expected the decision, given recent favorable developments on inflation. Oil prices have fallen by more than 20 percent over the past two months and a cooling housing market has contributed to a slowdown in overall growth.

The decision also represents a break for borrowers. It means that banks' prime lending rate, the benchmark for millions of consumer and business loans, will remain at 8.25 percent.

The Fed also had left rates unchanged at their last meeting in August, breaking a record string of 17 rates hikes that had driven the funds rate to its highest level in more than five years.

In recent months the central bank has tried to engineer a soft-landing for an economy in which growth has slowed enough to keep inflation from getting out of hand, without overdoing the credit tightening and raising the chances of a recession.

In its statement, the Fed continued to signal concerns about inflation, repeating a phrase it had used last time — that the Fed's rate setting panel "judges that some inflation risks remain."

The Fed also said — as it had last time — that "the extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information."

The Fed took note of the slowdown that has occurred in the economy, saying that "economic growth has moderated from its quite strong pace earlier this year" which it attributed to the cooling housing market and the impact of previous Fed rate hikes and higher energy prices.
The funds rate was at a 46-year low of 1 percent and the prime rate stood at 4 percent back in June 2004 when the Fed began a two-year credit campaign to raise rates. The Fed boosted rates a record 17 consecutive times before deciding to pause at the last meeting on Aug. 8.

The decision to keep rates unchanged Wednesday was supported by a 10-1 vote with Jeffrey Lacker, president of the Fed's Richmond regional bank, again casting the lone no vote. Lacker, who also dissented in August, argued again that another quarter-point rate hike was needed to keep inflation in check.

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The Associated Press contributed to this report.