The Federal Reserve Board today kept the federal funds rate at 1.25%, citing a risk that deflation would exceed inflation over the next few quarters. "The probability of an unwelcome substantial fall in inflation, though minor, exceeds that of a pickup in inflation from its already low level,” the Federal Open Market Committee statement said.
Hugh Johnson, chairman and president of First Albany Asset Management, said there was no surprise in the Fed’s move. "Neither the decision to hold interest rates unchanged, or the de facto bias toward less restraint — the statement that the greater risk in the near term is toward deflation — is a surprise, so neither one is a market mover,” said Mr. Johnson, whose firm manages about $1 billion in assets.