Fed holds interest rate steady

The Federal Reserve yesterday decided not to change a key bank interest rate. The decision marked the second time the Fed left the rate unchanged this year after having lowered it in measured steps from 5.25 percent in mid-2007 to the current level of just 2 percent.

Financial analysts had anticipated the Fed's decision, and many expect the Fed to hold rates steady until at least the end of this year. That means rates on home equity lines of credit, deposit certificates and savings accounts may not change much, though other rates may be more volatile.

In its statement, the Fed said inflation may ease up later this year and next year, but the outlook remains highly uncertain. Slow economic growth could put pressure on the Fed to lower interest rates while inflation could prompt the Fed to increase rates. The Fed’s decision yesterday attempts to balance the risks of slower growth and the prospect of higher prices.

Borrowers who are shopping for a loan should keep in mind that the Fed doesn't directly set the rates on home or auto loans, credit cards or other types of consumer debt. Instead, the Fed sets short-term bank rates that indirectly affect the rates consumers pay.


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