INSTANT VIEW: Fed holds rates steady

The Fed's moderately hawkish statement accompanying its decision to leave interest rates unchanged signals the central bank may raise interest rates later this year, an analyst says.
Reuters
The U.S. Federal Reserve held a key interest rate steady on Wednesday and voiced greater concern about inflation, taking a step down a road that could lead to higher borrowing costs.

KEY POINTS:

* The decision by the U.S. central bank, announced at the end of a two-day meeting, leaves the benchmark federal funds rate at 2 percent.

* It was the first time the Fed has held rates steady at a policy-setting session since embarking on a series of rate reductions in September to put a floor under an economy hit hard by a housing downturn and credit crisis.

COMMENTS: GREG SALVAGGIO, VICE PRESIDENT OF TRADING, TEMPUS CONSULTING, WASHINGTON:

"It's a bit more hawkish than people were whispering about. Certainly, the Fed's saying that the upside risks to inflation have risen has taken the market a bit off guard. This should be longer-term bullish for the dollar. Whether it can hold gains today remains to be seen. There are obviously some buyers coming into the market now, with people looking to grab the euro at cheaper levels there. But beyond that move, it should be dollar supportive."

ROBERT DYE, SENIOR ECONOMIST, PNC FINANCIAL SERVICES GROUP, PITTSBURGH, PENNSYLVANIA:

"The Fed presented a more balanced assessment of risks and there's no change in policy for the time being. They obviously had to signal that they would continue to keep a watchful eye on inflation, but we expect them to continue to hold rates steady over the summer months and through the end of this year, contrary to the prediction of the fed funds futures market."

WILLIAM LARKIN, PORTFOLIO MANAGER, CABOT MONEY MANAGEMENT, SALEM, MASSACHUSETTS:

"The bond market is selling off, but I thought the statement was pretty positive for bonds because they said that they thought growth and inflation were going to moderate."

"But most people see inflation (will) be a chronic problem as long as energy prices stay high."

STEPHEN SCHORK, EDITOR OF THE SCHORK REPORT, ENERGY NEWSLETTER, PHILADELPHIA:

"If we begin to see further dollar strength take some of the wind out of the bulls' sails, it will have a negative impact on oil prices." TOM KNIGHT, ENERGY PRODUCTS TRADER, TRUMAN ARNOLD, TEXARKANA, TEXAS:

"I don't expect the Fed decision to keep rates unchanged to do much for energy futures. Crude futures are still trading in range. We've fallen below $132 and drifting back higher... we will likely end at the middle of the range."

JOE MANIMBO, CURRENCY TRADER, RUESCH INTERNATIONAL, WASHINGTON:

"The Fed made a moderately hawkish statement, signaling that the Fed may actually go ahead and raise interest rates later this year. That would obviously help the dollar."

MARKET REACTION:

* BONDS: U.S. Treasury debt prices extended losses

* CURRENCIES: U.S. dollar gains, and then reverses the initial move as the euro bounces back above $1.56

* STOCKS: U.S. equity indexes add to gains

* RATE FUTURES: Fed fund futures choppy on FOMC decision, split on prospects for August fed move.