Federal Reserve policy-makers today decided to keep the federal funds rate at 5.25%, as expected.
"The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market," said a statement from the Federal Open Market Committee. The committee "judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information."
The 10-year Treasury bond yield changed little in reaction to the announcement, falling to 4.72 in midday trading from 4.735 at close yesterday, said Jane L. Caron, chief economic strategist and portfolio strategist at Dwight Asset Management. "I believe it's difficult for yields to decline substantially from current levels," she said. The Fed did leave the door open to further policy tightening due to concern about inflation, she noted.
Committee member Jeffrey M. Lacker cast the only vote in favor of a 25 basis-point rate increase, the statement said. Ms. Caron noted that Mr. Lacker also was the only member to favor a similar rate hike at the Aug. 8 meeting, when the rate was held at 5.25%. "I don't think the market will take it particularly negatively," she said.
Robert G. Smith, chairman of Smith Affiliated Capital, said the announcement was a "nonevent" that has already been discounted by the market. "My guess is that the market should back away as people take some profits here," Mr. Smith said. "But the outlook continues to look positive. Backups are opportunities to add and/or reorient your portfolio."