- The Washington Times - Wednesday, September 20, 2006

WASHINGTON (AP) — The Federal Reserve left a key interest rate unchanged on Wednesday, as falling energy prices have helped to restrain inflation pressures.

Federal Reserve Chairman Ben Bernanke and his colleagues issued a brief announcement saying they would leave the federal funds rate, the interest that banks charge each other, at 5.25 percent.

The decision represents a break for borrowers. It means that banks’ prime lending rate, the benchmark for millions of consumer and business loans, will remain at 8.25 percent.

The Fed also had left rates unchanged at their last meeting in August, breaking a record string of 17 rates hikes that had driven the funds rate to its highest level in more than five years.

The Fed’s reasons for leaving rates alone were nearly identical to the ones it gave in August. Analysts said the Fed may decide to keep rates unchanged for the rest of this year and well into 2007 in response to lower inflation pressures and an economic slowdown stemming in part from a cooling housing market.

“With the lower inflation numbers and the weaker housing data, the odds have shifted towards the Fed doing nothing for the rest of the year,” said David Wyss, chief economist at Standard & Poor’s in New York. Mr. Wyss said the next Fed move would likely be a rate cut sometime next year.

Wall Street took the Fed announcement in stride. The Dow Jones industrial average was up 49 points in late afternoon trading.

The decision to leave rates alone had been widely expected, given recent favorable developments on inflation. Oil prices have fallen by more than 20 percent over the past two months and a cooling housing market has contributed to a slowdown in overall growth.

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