Fed leaves rates unchanged, issues warning

After raising rates six times since June of last year, Federal Reserve policy-makers leave interest rates unchanged but remain concerned about inflation.

Scott Ard
Scott Ard Former Editor in Chief, CNET
CNET former Editor in Chief Scott Ard has been a journalist for more than 20 years and an early tech adopter for even longer. Those two passions led him to editing one of the first tech sections for a daily newspaper in the mid 1990s, and to joining CNET part-time in 1996 and full-time a few years later.
2 min read
The Federal Reserve decided today to keep interest rates unchanged, a move that was widely expected by economists and investors.

After meeting for five hours, the Fed's policy-making committee issued a brief statement that it left the federal funds rate at 6.5 percent. In the past 14 months, the Fed has increased the rate six times.

Today's inaction was not surprising, as several recent economic reports have indicated the economy is slowing and inflation remains tame.

In a brief statement, the Fed noted that advances in productivity have allowed the economy to grow while "containing costs and holding down underlying price pressures."

However, it warned that "the risks continue to be weighted mainly toward conditions that may generate heightened inflation pressures in the foreseeable future."

At the time of the Federal Reserve's announcement today, the Dow Jones industrial average was up 92 points to 11,112. The index of 30 stocks has gained more than 600 points, or 6 percent, so far this month on optimism that the Fed would not raise rates today.

The Nasdaq composite index, which also has gained about 6 percent this month, was up 42 points to 3,995 in midday trading.

The indexes gave back much of those gains after the Fed's announcement. The Dow closed at 11,139.15, up 59.34, and the Nasdaq closed at 3,958.21, up 5.06.

The Federal Reserve's primary mission is to keep inflation under control, and its main weapon is interest rates. When the Fed, which is chaired by Alan Greenspan, senses that the economy is growing at a rate that could ignite inflation, it often raises rates.

Rising interest rates make it more costly for businesses to fund expansion plans, putting the brakes on economic growth. Rising rates often result in falling stock prices, however.

The Federal Reserve meets again Oct. 3, but many experts say it is unlikely that interest rates will be adjusted so close to the presidential election. However, some economists are speculating that the Fed may decide to bump up rates by one-quarter to one-half of a point at the Nov. 15 meeting.