Federal Reserve policy-makers today left the federal funds rate target unchanged at 2%.
Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports, said a statement by the Federal Open Market Committee, which set the rate. However, labor markets have softened further and financial markets remain under considerable stress.
The committee statement also said that inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities, and some indicators of inflation expectations have risen.
The committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain, the committee added in its statement. Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the committee.
The news from the Fed helped a buoyant market that had risen earlier today on news of a further drop in crude oil prices to as low as $118 a barrel before closing at $119.17 on the New York Mercantile Exchange.
The Dow Jones industrial average closed up 331.62, or 2.94%, at 11,615.77; the S&P 500 rose 35.87, or 2.87%, closing at 1,284.88; and the Nasdaq composite was up 64.27, or 2.81%, to close at 2,349.83. All numbers are preliminary.
Theres an uptick in inflationary concerns (at the Fed), said Robert G. Smith, chairman and CEO of bond manager Smith Affiliated Capital. We disagree with that; we believe that the larger order of concern is deflation, which is emanating from this widespread deleveraging thats taking place in every sector of the credit markets. In our view, the Fed is late to the game, they continue to fight and focus on trying to influence people, but all of their rate cuts have not been evidenced in any other sectors of the credit market, except Treasuries, where rates have gone up.