Fed Leaves Interest Rate at 5.25 Percent

For the second straight month, the Fed has decided not to raise interest rates.

The Federal Reserve left a key interest rate unchanged on Wednesday, as falling energy prices have helped to restrain inflation pressures. Federal Reserve Chairman Ben Bernanke and his colleagues issued a brief announcement saying they would leave the federal funds rate, the interest that banks charge each other, at 5.25 percent.

The decision represents a break for borrowers. It means that banks’ prime lending rate, the benchmark for millions of consumer and business loans, will remain at 8.25 percent. The Fed also had left rates unchanged at their last meeting in August, breaking a record string of 17 rates hikes that had driven the funds rate to its highest level in more than five years.

It’s good to see the Fed finally get out of the economy’s way.

I understand that their job is to regulate the money supply to prevent radical swings and their intervention is needed on occasion, as it frequently was throughout the 1980s. In recent years, though, they seem to be doing something for the sake of doing something, as when former Chairman Alan Greenspan seemed hell bent on bursting the Dot.com and real estate “bubbles,” essentially creating a self-fulfilling prophecy.

This latest drive to hammer out non-existent inflation (radical swings in fuel prices obviously have an impact on the economy but are not “inflation” in the classic sense) has made it harder for people to afford homes and otherwise negatively impacted the economy. It’s not the role of the Fed to enforce their preferences as to how people should invest their money but rather to keep the money supply in check with the larger economic picture.

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James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.