Fed Leaves Interest Rates Unchanged

Good deal. The Fed stared down the market and the market blinked. My earlier blog post reckoned rates would increase. Glad to see the news today.

Fed Keeps Rate at 2%, Rebuffing Call for Reduction

By Scott Lanman and Craig Torres

Sept. 16 (Bloomberg) -- The Federal Reserve left its main interest rate at 2 percent, rebuffing calls by some investors for an immediate cut after Lehman Brothers Holdings Inc.'s bankruptcy shook markets worldwide.

The Fed did signal it will consider a reduction in the future by acknowledging in its statement that strains in financial markets are increasing. The central bank also said that employment is weakening and export growth is slowing, and dropped a reference to elevated inflation expectations.

``Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters,'' the Federal Open Market Committee said after meeting in Washington.

Chairman Ben S. Bernanke is trying to draw a line between interest rates, which will be set based on its assessment of the broader economy, and emergency operations designed to combat financial turmoil. Less than 48 hours before today's decision, the Fed expanded its lending to securities firms in the wake of Lehman's failure, including accepting equities as collateral for the first time.

Stocks initially fell after today's decision, then rallied after a report that the central bank is considering a loan to American International Group Inc. That would be a shift from yesterday, when officials were inclined against providing funds.