The Federal Reserve holds rates at 2 percent despite stock market turbulence

September 16, 2008 by · Leave a Comment
Filed under: Economic News 

I believe they decided to keep rates steady to send the right message to the markets that firm failures does not dictate our monetary policy no matter how flawed it is.  We could see some easing in the future but for now I believe they are trying to send a message to the markets.  Sit tight.

News Release:

The Federal Reserve held U.S. interest rate steady on Tuesday, opting to soothe rattled financial markets with central bank lending and saying it was worried both about economic weakness and price pressures.

The U.S. central bank’s unanimous decision leaves the interbank overnight federal funds rate at 2 percent, where it has been since April. It said “downside risks to growth and the upside risks to inflation are both of significant concern,” surprising many in financial markets who had expected the Fed to signal greater worries on growth.

Investors had begun to speculate this week that the central bank would lower rates in the wake of the bankruptcy of 158-year-old Lehman Brothers Holdings Inc, the sale of investment bank Merrill Lynch to Bank of America, and a scramble for cash by insurer American International Group Inc.

U.S. stocks initially dropped in a sign of disappointment, but quickly turned higher. The dollar gained on the euro and prices for U.S. government bonds held steady.

“Strains in financial markets have increased significantly and labor markets have weakened further,” the Fed said in a statement announcing its decision. “Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters,” it added.

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