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Economy in Brief

FOMC Left Funds Rate at 2.00% - The Balance of Factors
by Tom Moeller August 5, 2008

As expected, the Federal Open Market Committee left the Federal funds rate unchanged today at 2.00%. The action was as widely expected.

The discount rate also was left unchanged at 2.25%.

The Fed's statement showed the distinct balance of factors which led to the decision to leave rates unchanged.1) "Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports. However, labor markets have softened further and financial markets remain under considerable stress."2) "Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth."3) "Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities, and some indicators of inflation expectations have been elevated. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.

The decision was unanimous except that Richard W. Fisher, President of the Federal Reserve Bank of Dallas, preferred an increase in the target for the federal funds rate at this meeting.

For the complete text of the Fed's latest press release please follow this link.

Profits and Balance Sheet Developments at U.S. Commercial Banks in 2007 from the latest Federal Reserve Bulletin is available here.

  Current Last July 2007 2006 2005
Federal Funds Rate, % (Target) 2.00 2.00 2.00 5.05 4.96 3.19
Discount Rate, % 2.25 2.25 2.25 5.86 5.96 4.19
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