Despite data, Fed leaves rates steady

Wall Street turbulence, Main Street credit problems and a nationwide housing slump pose increasing risks to the economy, the Federal Reserve said Tuesday, even as it left interest rates unchanged.
Although Federal Reserve Chairman Ben Bernanke and his central bank colleagues acknowledged challenges that have intensified since their last meeting in late June, they nonetheless expressed hope that the economy will safely make its way.
The policymakers also clung to their belief that the biggest potential danger to the economy is that inflation won't recede as they anticipate.
Against these economic crosscurrents, the Fed left an important interest rate at 5.25 percent on Tuesday. In turn, commercial banks' prime interest rate for certain credit cards, home equity lines of credit and other loans -- would stay at 8.25 percent.
The central bank's key rate hasn't budged for more than a year. Before that, the Fed had raised rates for two years to fend off inflation.
On Wall Street, investors overcame their initial disappointment and bid stocks higher. The Dow Jones industrials gained 35.52 points to close at 13,504.30.
The Fed policymakers didn't signal that a rate cut -- as an insurance policy against undue economic weakness -- would be imminent. Analysts believe the Fed probably will leave rates alone at its next meeting on Sept. 18. But economists and investors think the odds are growing that the Fed might lower rates by the end of this year, if the economy shows signs of faltering and if inflation isn't worrisome.
"Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses and the housing correction is ongoing," the Fed said. "Downside risks to growth have increased somewhat," it added...more