Federal Reserve Leaves Interest Rates Unchanged

The Federal Reserve decided to leave its key federal funds rate - which has a great impact on mortgage rates - unchanged at 5.25 percent, where it has been sitting since June.

Federal Reserve Board Chairman Ben Bernanke and his colleagues on the policy making Federal Open Market Committee said they would leave rates unchanged for thee fourth consecutive meeting.

“Economic growth has slowed over the course of the year, partly reflecting a substantial cooling of the housing market,” the one-page statement said, adding the word substantial to the description of the housing slowdown.

The rest of the statement was almost identical to the one issued in late October. The next scheduled meeting is not until January 30-31, though the Federal Reserve is not prohibited from making surprise announcements.

“Inflation pressures seem likely to moderate over time,” the statement said, “Nonetheless, the committee judges that some inflation risks remain.”

As expected, the vote was not unanimous.

Bernanke and eight of his colleagues on the 10-member panel said they would monitor both slowing economic growth and rising inflation and make a decision about future moves based on changes to the landscape.

Richmond Fed President Jeffrey Lacker again sought an additional quarter point rate hike to 5.5 percent, from 5.25 percent at present.

“The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and U.S. economic growth, as implied by incoming information,” the statement said, repeating the language of last month’s statement.

What this means for you: The Fed boosts prime interest rates in order to fight inflation. It did so at 17 consecutive meetings from 2004-2006. But as the economy cools, the Fed keeps rates low in order to boost growth, so expect mortgage loan costs to remain about where they are now.