Federal Reserve leaves rate unchanged

WASHINGTON (AP) — The Federal Reserve decided Wednesday to leave a key interest rate unchanged and cited a heightened risk of inflation, which could lead to rate increases down the road. Private analysts said the Fed may delay the first rate increase until December.

The central bank announced that it was keeping the federal funds rate — the interest rate that banks charge each other — at 2 percent. It marked the first time in 10 months that the central bank has failed to reduce interest rates at one of its regular meetings.

In a brief statement, Fed Chairman Ben Bernanke and his colleagues cited both the threats to growth and rising inflation pressures as problems confronting the economy at the moment. They said the downside risks to growth “appear to have diminished somewhat,” while adding that “the upside risks to inflation and inflation expectations have increased.”

The Fed action was approved on a 9-1 vote with Richard Fisher, president of the Fed’s regional bank in Dallas, casting a dissenting vote. Fisher objected to the action, saying he would have preferred an immediate increase in interest rates to fight inflation.

The decision to leave rates unchanged had been widely expected by financial markets. The Dow Jones industrial average staged a brief rally but then returned to around the level where the Dow was just before the announcement.

Economists said they believed Fed policymakers were seeking to assure markets that while they are watching inflation carefully, they do not feel an immediate need to start raising rates.

“They reaffirmed that there will be no further rate cuts and the next change will be a rate increase, but I didn’t see any special urgency about how soon that rate increase will take place,” said David Jones, chief economist at DMJ Advisors.