Faced With ‘Opposing Forces,’ Fed Holds Rates
The Federal Reserve, confronted with the perils of a slumping economy and rising inflation, has decided for a second straight meeting to leave interest rates unchanged.
According to the Associated Press, the Fed announced today (Aug. 5) that it was keeping its target for the federal funds rate, the interest that banks charge each other, at 2%.
The decision to leave rates alone had been widely expected by financial markets. The Fed is currently caught between the opposing forces of what many economists believe is a recession and rising inflation pressures, triggered by this year’s huge run-up in energy prices.
The Fed decision means that commercial banks’ prime lending rate, the benchmark for millions of consumer and business loans, will remain unchanged at 5%, its lowest level since late 2004.
Federal Reserve Chairman Ben Bernanke and his colleagues are being forced to navigate treacherous waters, trying to keep the economy from plunging into a deep recession while worrying that by keeping interest rates so low they could trigger a dangerous inflation spiral.
In a brief statement explaining its decision, Fed officials cited both concerns.
“Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the committee,” the Fed said.