Federal Reserve holds interest rates

By: Sarah_Jones

The U.S. Federal Reserve on Wednesday held its benchmark interest rate steady for a second straight meeting, saying that while inflation risks remain, they should abate as economic growth slows. The Federal Open Market Committee's decision to hold the overnight federal funds rate target at 5.25 percent -- the level hit in June after 17 straight increases -- was widely expected. But it was not unanimous.

The Fed said there were a number of reasons to expect inflationary pressures to "moderate over time," but it made clear it viewed this more as a forecast than a reality, holding out the prospect of higher rates if needed.

A sharp drop in the price of oil and gasoline in recent weeks should make the Fed's task of turning inflation lower somewhat easier, while providing a bit of a cushion against the risk of a hard economic landing. U.S. crude oil prices, which hit a record high of $78.40 a barrel in mid-July, slipped below $60 on Wednesday for the first time since March.

The US economy is slowing and heading for a soft landing in 2007, it is likely that the Fed will start cutting interest rates during 2007.

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