The Federal Reserve Open Market Committee (FOMC) will announce its decision on interest rates Thursday at the end of a two-day meeting. Although some, including one of my colleagues, believe that the Fed will raise rates (see Sheldon Liber's post, "The Fed may have to raise interest rates") and others believe the Fed may lower rates, I believe it will keep rates on hold for now and for the immediate future. Update: The Fed did, indeed, announce it was keeping rates steady, expressing "some optimism" about a "modest" improvement in core inflation readings.

I think the Fed will mention that core inflation appears to be at the high end of the desired range but is currently under control and emphasize its concern with the spillover effect of higher food and fuel prices on the core rate in the future. This should help it to maintain its credibility as an inflation hawk.

The Fed will discuss the strength of the economy as demonstrated by the low unemployment rate and other economic data but also acknowledge the seriousness of the housing crisis. It will indicate that it does not appear to be spreading to other parts of the economy. This will be necessary to calm Wall Street anxiety that the Fed is not vigilant in preventing a recession.

Continue reading Fed keeping rates unchanged for now

Fed keeping rates unchanged for now originally appeared on BloggingStocks on Thu, 28 Jun 2007 10:15:00 EST. Please see our terms for use of feeds.