FOMC

Fed Keeps Rate at 5.25%, Retains Focus on Inflation (Update1)

By Craig Torres

June 28 (Bloomberg) -- The Federal Reserve kept the benchmark U.S. interest rate at 5.25 percent and stressed that inflation is the greatest risk facing the economy.

``Readings on core inflation have improved modestly in recent months,'' the Federal Open Market Committee said today after a two-day meeting in Washington. ``However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated.''

Officials have resisted calls for rate increases and cuts in the past year, helping the economy weather a housing slump and giving inflation a chance to recede of its own accord. While price gains have slowed, the statement suggests policy makers still envisage risks to price stability.

``The committee's predominant policy concern remains the risk that inflation will fail to moderate as expected,'' the Fed said. Turning to growth prospects, the Fed said the economy is ``likely to continue to expand at a moderate pace over coming quarters.''

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Since the announcement the market has bounced around with the Dow , S&P and Nasdaq intially up by a fair amount before pulling back. If inflation is still a problem, the chances of rate cuts later this year are very slim.