Fed Leaves Interest Rates Unchanged

The Federal Reserve announced today that it will keep the key federal funds and discount rates unchanged. The federal funds rate, which banks charge each other for short-term borrowing, will stay between zero and 0.25 percent. The discount rate, which the Fed charges banks for short-term borrowing, remains at 0.50 percent.

Furthermore, the Fed said in its released written statement that rates will remain constant for "an extended period." The U.S. dollar dropped on the news and commodity prices such as oil and copper rose.

Some analysts hoped the Fed would at least indicate that it planned to raise interest rates soon as a hedge against inflation. The board members clearly believe the American economy is still too weak to withstand rate increases in the immediate future.

However, the Fed statement did say it would start reducing the amount of mortgage bonds it buys. The Fed has committed nearly $1.5 trillion to purchasing bonds in hopes of keeping providing banks more cash to loan. Combined with the stimulus package approved by Congress and signed by President Obama early this year, the Fed members seem to think there is enough money in the economic system to spur a recovery.