Fed Passes on Rate Increase for Second Time

Situation

• W/ only 1 dissenting vote, Fed declines for 2nd time to raise rates
  
• Follow-up statement indicated would maintain rates at next meeting as well
  
• Suggested that inflation risk easing due to housing downturn, retreating energy prices
  
• Bernanke view that slowing economy will damp inflation at odds w/ some economists
  
• Latter experts say continuing strong consumer demand may lead to increased prices
  
• Dissenting Fed policy maker, Jeffrey Lacker, favored quarter point raise
  

Significant Points

• Next meeting in late Oct, just before midterm elections
  
• Stock market buoyed by Fed decision, Dow Jones closed just below record high
  
• Economic adviser, Albert Wojnilower: continued strong consumer spending fueling "creeping inflation"
  
• Fed acknowledged risk, said future actions would depend on "evolution of the outlook for both inflation and economic growth"
  
• Fed statement omitted any reference to effect of rising labor costs
  
• Moody's Economy.com chief economist considers omission significant

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Sourced From: The New York Times, September 21,2006

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