Federal Reserve policymakers left interest rates unchanged yesterday, as was widely expected, but left open the possibility for later rate increases should inflation arise.
However, most analysts believe the Fed will not boost rates again until after the November presidential election, if at all.
"I think this is a calculated move by the Federal Reserve, leaving the door open for future rate increases," said Pradeep Ganguly, director of research and chief economist for the Maryland Department of Business and Economic Development. "They're not going to do it before the Nov. 7 election, that much is for certain."
On Wall Street, which had anticipated no increase, stocks closed moderately higher after shedding some earlier gains.
The Dow Jones industrial average rose 59.34 points, or 0.54 percent, to close at 11,139.15. The Nasdaq composite index rose 5.06 points, or 0.13 percent, to finish the day at 3,958.21.
Yesterday's decision to stand pat on short-term rates was made during a closed-door session of the Federal Open Market Committee, the central bank's policy-making arm, which is headed by Fed Chairman Alan Greenspan.
As a result, the federal funds rate -- the rate used for overnight loans between banks --remained at 6.5 percent, the highest level in nine years. The fed funds rate helps determine the so-called prime rate -- itself a benchmark that determines the interest rates businesses and consumers pay for all types of loans.
Since June 30, 1999, the FOMC has raised interest rates six times, or 1.75 percentage point to slow the pace of economic growth that the Fed continues to fear is brisk enough to touch off inflation. The last increase -- a half-point move -- came in May.
As a result, costs to borrowers have risen. The interest rate for a 30-year fixed-rate mortgage stands at 7.96 percent. That's down from its 8.64 percent peak in May but higher than the 7.63 percent it stood at before the Fed began pushing rates higher. And the prime rate is at a nine-year high of 9.5 percent, up from 7.75 percent in June 1999.
Even though the U.S. economy grew at a surprisingly strong 5.2 percent annual rate in the second quarter, inflation has failed to appear. Most economists point to recent reports as the foundation for their belief that growth has slowed to a more sustainable 3.5 percent to 4 percent rate in the current quarter -- evidence cited by central bank policy-makers in their decision to hold the line on short-term rates.
