- The Washington Times - Wednesday, May 9, 2007


The Federal Reserve held interest rates steady, extending a nearly yearlong period of stability that has positives for savers and borrowers.

Fed Chairman Ben S. Bernanke and his central bank colleagues yesterday left an important interest rate unchanged at 5.25 percent, where it has stood since last June. The decision was unanimous.

The Fed’s decision means that commercial banks’ prime interest rate — for certain credit cards, home-equity lines of credit and other loans — stays at 8.25 percent.

Borrowers had endured two years of rate increases. But the current period of steadiness can help them regain their footing by paying down or consolidating debt, experts said, and predictable rates can help with investment decisions.

For savers, “although rates have stabilized, they have stabilized at attractive levels,” said Greg McBride, a senior financial analyst at Bankrate.com. “They can earn in excess of 5 percent for a range of bank products from money market accounts to five-year CDs.”

Investors are craving an interest rate cut. But many economists think the Fed may keep rates right where they are through most — if not all — of this year.

The Fed used the same language as it did at its March meeting and said any future rate change will depend on data about growth and inflation.

Assessing economic conditions, Fed policy-makers noted that growth slowed earlier this year and that the economy is still feeling the impact of the housing slump.

Although that was a tad more bearish than its previous assessment, Fed policy-makers nonetheless continued to predict that the economy would expand at a “moderate pace.”

The Fed also stuck with its forecast that inflation should recede over time. Yet it renewed its warning that underlying inflation — which excludes food and energy prices — remains “somewhat elevated.” Policy-makers once again said that their “predominant” concern is whether inflation fails to moderate as expected.

Inflation is bad for the economy and for peoples’ pocketbooks. Out-of-control prices can erode workers’ paychecks, investments and standards of living.

The Fed’s goal is for the economy to slow sufficiently to fend off inflation, but not so much as to slide into a recession.

The Fed’s decision to leave rates alone comes as economic growth has slowed, and inflation, while showing some improvement, is too high for the Fed’s liking.

Economic growth slowed to a near crawl of 1.3 percent in first quarter of this year, the worst performance in four years.

Fallout from the housing slump was the main problem, causing businesses to tighten spending. Consumers, however, showed resilience and managed to boost their spending sufficiently to keep the economy moving ahead.

Some wonder just how much fervor consumers will have in the months ahead, given rising energy prices and some signs of cooling in job growth.

The unemployment rate edged up to 4.5 percent in April as payrolls grew by just 88,000, the fewest in 21/2 years.

Energy prices have surged to a record nationwide average of $3.07 per gallon, according to oil industry analyst Trilby Lundberg. The previous record was $3.03 per gallon, on Aug. 11, 2006.

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