Fed leaves interest rate alone

August 5, 2008 12:25:37 PM PDT
Federal Reserve policy makers have decided for a second straight meeting to leave the federal funds rate at 2 percent. The central bank is managing a difficult balancing act, trying to keep the economy from plunging into a deep recession without triggering a dangerous inflation spiral. Higher rates could further weaken the troubled economy while lower rates could fuel already rising inflation. So the Fed is holding steady.

In a brief statement explaining its decision, Fed officials cited both concerns.

They say "downside risks to growth remain," but add that "upside risks to inflation are also of significant concern to the committee."

The Fed decision means that commercial banks' prime lending rate will remain unchanged at 5 percent. The rate is a benchmark for millions of consumer and business loans. It's at its lowest level since late 2004.