Transcripts

Interest Rates Remain Unchanged

SUSIE GHARIB: The Federal Reserve held interest rates steady and that sent stocks charging ahead. The Dow surged 98 points, just missing a new record high. The NASDAQ jumped 15. Investors were encouraged by Fed comments that the economy is firming while inflation is easing. And for the first time in several meetings, the Fed decision was unanimous. Erika Miller reports.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: As word of the Fed's decision hit trading floors, stocks shot higher. Experts say policy makers gave investors two pieces of good news. Economic growth is healthy and inflation is receding. In its statement, the Fed said, quote, overall, the economy seems likely to expand at a moderate pace over coming quarters, end quote. Economist Lakshman Achuthan says the Fed is no longer worried a soft housing market will drag down the overall economy.

LAKSHMAN ACHUTHAN, MANAGING DIRECTOR, ECONOMIC CYCLE RESEARCH: They are giving us a very clear signal that they are not afraid of a recession. They are not afraid of a hard landing. They have a lot of faith in the durability of this recovery and expansion continuing.

MILLER: On the inflation front, the Fed said, quote, readings on core inflation have improved modestly in recent months and inflation pressures seem likely to moderate over time, end quote. The Fed's comments overshadowed its decision to keep its Federal funds target rate at 5.25 percent for a fifth straight meeting. The vote was unanimous. Most Fed watchers expect the Fed to hold rates steady for quite a while, but policy makers still kept their bias toward raising rates if needed to reduce inflation pressures. Some economists, like John Ryding of Bear Stearns, see higher rates this summer.

JOHN RYDING, CHIEF US ECONOMIST, BEAR STEARNS: I think the Fed will firm policy when it's clear that GDP growth is running above 3 percent and the core inflation isn't moderating further and may indeed be picking up. Now, those are the conditions. When will those conditions be seen to be satisfied? I think sometime around the middle of the year.

MILLER: Investors hope to get a better sense of the Fed's thinking in two weeks. On February 14, Fed Chairman Ben Bernanke will present his semiannual testimony on the health of the economy to Congress. Erika Miller, NIGHTLY BUSINESS REPORT, New York.