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By Michael E. Kanell
Atlanta Journal-Constitution
Salt Lake City Tribune
Wednesday, December 13th, 2006
The nation's central bankers took aim Tuesday at what they said is a threat of inflation and —- for the fourth consecutive session —- they held their fire.
The Federal Reserve's elite committee voted 10-1 to leave the benchmark interest rate, which is used to set costs for a range of business, consumer and household loans, where it has been since June.
"Readings on core inflation have been elevated," but rising prices are not enough of a problem to warrant higher rates, the Fed said in a statement.
Higher rates tend to chill growth by making it more costly to borrow money. But the slowdown usually cools inflation, too.
A number of factors —- including lower oil prices —- have been nudging inflation down, but it is still higher than the Fed's "target" zone, said Emily Sanders, president and chief executive of Sanders Financial Management in Norcross.
And with the Fed focused on inflation, a move in the opposite direction —- a rate cut —- is out of the question, she said. "Their bias is still inflation-fighting. Until there is definite proof that inflation is contained, there is still the possibility they will raise rates in 2007."
There was one vote to do that now. Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, voted to lift the benchmark rate.
Starting in 2001, the Fed has been trying to steer between recession and inflation. It cut rates to near-record lows, then, in mid-2004, reversed field, raising rates at 17 consecutive meetings.
The benchmark rate went from 1 percent —- below the rate of inflation —- to 5.25 percent in June and has stayed there since.
For real inflation hawks like Lacker, that is still shy of where it should be. Some other economists worry that the rate-boost campaign applied just a bit too much braking.
The nation's economy grew at a 5.6 percent clip in the first quarter of this year, but then slowed dramatically. The pace of growth in the third quarter was 2.2 percent.
Job growth, too, has decelerated.
Now, the economy is burdened with sagging sales in housing and a badly battered automotive sector.
The Fed on Tuesday did acknowledge a "substantial cooling of the housing market" as one of the drags on expansion. However, officials dismissed fears that the economy might keep sliding: "Although recent indicators have been mixed, the economy seems likely to expand at a moderate pace on balance over coming quarters."
Like the Fed, many forecasters have predicted a "soft landing" —- another quarter or two of sluggish growth, followed by a healthy pickup.
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