Fed Leaves Rates Unchanged

Wall Street Journal (08/06/08) P. A3; Reddy, Sudeep
The Federal Reserve has decided to leave interest rates unchanged for a second meeting in a row. In a decision widely expected by financial markets, the Federal Reserve will keep the federal funds rate on hold at 2 percent. In a statement, the central bank says tight credit conditions, the ongoing housing contraction and high energy prices are likely to weigh on economic growth over the next few quarters and that the downside risks to growth remain. The Federal Reserve also says it expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain. The Fed's announcement, offering a more balanced view of growth and inflation risks than it did in June, helped extend a rally in stocks, as investors concluded that a rate increase is not likely soon. Rates for a 30-year-fixed mortgage are higher than they were a year ago, as banks tighten standards and Fannie Mae and Freddie Mac struggle. Banks are facing major losses from mortgages, giving them less capital for new lending.