Transcripts

Interest Rates Remain Unchanged

SUSIE GHARIB: No change in interest rates today by the Federal Reserve, as the central bank said the economy is slowing down. The decision marked the third time in as many months the Fed held its key benchmark rate steady at 5.25 percent. As Erika Miller reports, economists are split on when the Fed will make its next move.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Although the Federal Reserve did not raise rates today, the central bank kept the door open to future rate hikes. Repeating warnings in previous statements, the Federal Reserve said inflation risks remain and additional firming may be needed. Although the statement was virtually the same as last time, there were some subtle changes. Policymakers said quote, economic growth has slowed over the course of the year, end quote. Previously, central bankers said quote, the moderation in growth appears to be continuing, end quote.

STEPHEN GALLAGHER, CHIEF US ECONOMIST, SOCIETE GENERALE: What's new in this statement was that they said going forward they continue to see the economy growing at a moderate pace. I would say they're not fearful the economy is going to suddenly collapse or fall into -- be mired in deeply slow growth.

MILLER: The Fed also removed a phrase suggesting that energy and other commodity prices have the potential to push up inflation. The Fed's comments overshadowed its decision to keep interest rates unchanged. The Federal funds rate remains at 5.25 percent. It's the third straight pause after a more than two years of rate hikes. Economists say the Fed is in wait-and-see mode.

GALLAGHER: I think it's really uncertainty on the economy. We are seeing some slowdown. We know that eventually some slowing in the economy will bring down those inflationary pressures. And the Fed can't be too certain just how deeply the economy is going to slow.

MILLER: The decision to hold rates steady was not unanimous. For the third time in a row, Federal Reserve Bank of Richmond President Jeffrey Lacker , voted for a quarter point rate hike. The question now is the timing and direction of the Fed's next move. A minority of economists think the Fed will bump up rates perhaps as soon as December. But most think rates will stay where they are for an extended period of time.

JOSHUA FEINMAN, CHIEF ECONOMIST, DEUTSCHE ASSET MGMT: I think they are going to continue to wait for developments on the economy. They want to see just like the rest of us whether the knock on effects from housing to the rest of the economy are going to be big or small or contained or spreading.

MILLER: There's one thing nearly all economists agree on. The Fed is likely to reverse course and start lowering rates next year. Some think the first cut could come as soon as January, but others don't think it will happen until the second half of the year. Erika Miller, NIGHTLY BUSINESS REPORT, New York.