The Evening Wrap: Immobilized
The Federal Reserve stood pat on interest rates Wednesday, but it was hardly out of complacency.</br></br>Caught between heightened inflation fears and persistent concerns about a sluggish economy, Ben Bernanke and his fellow policy makers decided to leave the Fed's key short-term interest rate unchanged at 2%. The non-move marked the end of a series of rate cuts dating back to last summer, when credit woes were creeping up on the economy. The latest vote was 9-1, with Richard Fisher, president of the Federal Reserve Bank of Dallas, once again dissenting, this time opting for a rate increase. And, indeed, recent comments from Fed personages -- including Wednesday's commentary -- suggest the bank's next rate move will be upward. "Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased," the Fed said in its statement. The bank is in a bit of a pickle. Reporter Sudeep Reddy writes that Fed officials are trying to avoid rate increases for now to avoid exacerbating the weakness in employment, financial markets and the housing sector. At the same time, they are trying to signal they're serious about fighting inflation by talking about the risks of rising inflation expectations and suggesting a willingness to act quickly if inflation expectations get out of hand. Assuming commodity prices don't go completely haywire, some economists think that won't happen, as the weakening economy, particularly the rising unemployment rate, restrain wages and a willingness to spend. Indeed, Joseph Brusuelas of Merk Investments thinks a rate increase won't be happening anytime soon. "We anticipate that the rate hike currently priced in [by markets] for September will wither away in the heat of the summer slowdown in the economy," he said. Likewise, PNC economist Stuart Hoffman, while now more convinced that the Fed's next move will be an increase, sees the federal-funds rate holding at 2% until "late 2008 or early 2009."</br></br>---</br></br>Stocks Inch Up</br></br>The Federal Reserve's announcement gave the Dow Jones Industrial Average a quick boost, but in the end the blue-chip gauge was ahead only 4.40 points, or 0.04%, at 11811.83. Meanwhile, the S&P 500 rose 0.6%, or 7.68, to 1321.97 and the technology-heavy Nasdaq Composite Index gained 1.4%, or 32.98, to 2401.26. Crude-oil futures fell $2.45, or 1.8%, to $134.55 a barrel in New York. The dollar weakened against other major currencies.