Federal funds rate holds steady at 2%

The Federal Reserve’s open market committee decided today to maintain the benchmark federal funds rate at 2%.
The rate, which determines how much banks pay when they borrow from each other overnight to meet Fed capital requirements, has been at 2% since April.
Although the FOMC said it expects inflation to ease later this year and next, a committee statement called the nation’s economic outlook “highly uncertain.”
“Tight credit conditions, the ongoing housing contraction and elevated energy prices are likely to weigh on economic growth over the next few quarters,” the statement said.
Richard W. Fisher, president of the Federal Reserve Bank of Dallas, was the lone FOMC member to cast a negative vote, saying the key rate should be raised to fight inflation.
The move comes one day after the U.S. Commerce Department reported that personal spending increased 0.8% in June, marking the steepest one-month gain since a 1% increase in February 1981.
Advisers had various reactions to the Fed’s move.
Countries around the world are raising their interest rates and the United States is behind the curve, said John Lekas, president and portfolio manager of Leader Capital Corp. in Portland, Ore.
Mr. Lekas thinks that the Fed ultimately will have to increase the fed funds rates to between 8% and 9% over the next 24 to 30 months to keep inflation down, reward savers and stimulate capital markets.
“Right now, the well is dry [and a drastic increase in interest rates is needed],” he said.
Leader Capital manages $300 million in assets.
“With the current state of the credit markets, the Federal Reserve is in unchartered waters and are taking a status quo approach,” said Peter Sorrentino, vice president and senior portfolio manager at Huntington Asset Advisors Inc. of Columbus, Ohio.
Mr. Sorrentino predicted that the Fed will not move interest rates until the fourth quarter, following the presidential election.
Huntington Asset Advisors manages $15 billion in assets.