Fed Leaves Key Rate Unchanged

WASHINGTON (AP) -- The Federal Reserve kept a key interest rate unchanged Tuesday, saying that strains in financial markets have "increased significantly" but the inflation outlook remains uncertain.

The Fed's action was a disappointment to investors who were hoping that severe stress in financial markets that surfaced in recent days would prompt the central bank to resume cutting interest rates.

The central bank said it was keeping its target for the federal funds rate, the interest that banks charge on overnight loans, unchanged at 2 percent.

In a statement, the Fed said "strains in financial markets have increased significantly and labor markets have weakened further."

However, the central bank said it also remained concerned about inflation pressures.

"The downside risks to growth and the upside risks to inflation are both of significant concern to the committee," the Fed officials said.