Fed Holds Funds Rate @ 5.25%

The Federal Reserve's Open Market Committee today decided to maintain the target for the federal funds rate at 5.25 percent. This is the second consecutive month the committee opted not to raise the target rate, which steadily increased from 1 percent to 5.25 percent between June 2004 and July 2006.

The federal funds target rate is the interest rate charged by banks when they borrow funds "overnight" from each other.Citing the cooling housing market as a factor for "moderation in economic growth," the Fed also reported higher levels of inflation. "

However, inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations, and the cumulative effects of monetary policy actions and other factors restraining aggregate demand," the Fed said in a prepared statement.

The Fed also indicated the possibility of future interest rate increases, acknowledging that "some inflation risks remain. 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 economic growth, as implied by incoming information."

**Taken from the California Association of Realtors Bulletin, dated September 20, 2006.