Highlights
The Fed kept its fed funds target rate unchanged at 2 percent but the statement indicates that the debate over when to focus on inflation may be picking up. The vote was 10 to 1 to keep the target the same with Dallas Fed President Richard W. Fisher voting to increase the rate at this meeting. Fisher also dissented at the June 24-25 meeting.

Overall, the FOMC sees downside risks to growth and upside risks for high inflation as about balanced for now. Regarding growth, however, the Fed appears to have downgraded its view of the second half.

"Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth."

The Fed still sees inflation as high but expects inflation to moderate later this year and next.

"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 been elevated. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain."

The big question is why does the Fed see inflation coming down? There are two basic ways for inflation to come down from this point - the economy is slowing enough on its own under current policy and/or the Fed tightens in the near future. Odds are both will be the eventual reasons that inflation eases by 2010. The Fed may also get some help from less high oil prices - due in part to slowing growth.

For now, the Fed still seems to be mostly concerned about the stability of the credit markets as Chairman Bernanke stated before Congress last month. The Fed still seems poised to raise rates to lower inflation - but not until it is clear that credit markets have stabilized.

The official announcement follows.

"The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

"Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.

"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 been elevated. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.

"Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability.

"Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Elizabeth A. Duke; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Voting against was Richard W. Fisher, who preferred an increase in the target for the federal funds rate at this meeting."

2008 Release Schedule

Released On: 1/30 3/18 4/30 6/25 8/5 9/16 10/29 12/16