Inflation Seen As Continued Threat

Wednesday, February 21st 2007, 1:19 pm

By: News On 6

WASHINGTON (AP) _ Federal Reserve policy-makers saw a lessening of economic threats from the housing slump but continued to worry about inflation as they decided last month to leave existing interest rates intact.

According to minutes of their deliberations released Wednesday, Fed Chairman Ben Bernanke and his colleagues believed that while the slowdown in housing continued to pose a threat to the overall economy, those risks had ``diminished somewhat'' with statistics indicating the steep slide in housing might be coming to an end.

The central bank, which kept interest rates unchanged at its last meeting, still believed the greatest threat to the economy would occur if policymakers did not succeed in reducing inflation pressures. ``All members agreed that the predominant concern remained the risk that inflation would fail to moderate as desired,'' the minutes of the discussion concluded.

The Fed minutes, released three weeks after the end of each meeting, are eagerly scanned by financial markets searching for further clues on the future path of interest rates.

The Fed at the January meeting left the federal funds rate, the interest that banks charge each other, unchanged at 5.25 percent. It marked the fifth straight meeting that rates have not been altered since the Fed's last rate hike in June 2006 .

Many economists believe that Fed officials will keep rates unchanged for all of 2007 as they watch to see whether their hoped-for soft landing materializes. That's the Fed's preferred scenario _ one in which growth slows enough to keep inflation in check without retreating so fast that it raises the risks of a recession.

While the Fed did not raise rates at the January meeting, it signaled in its public statement released on Jan. 31 that further rate hikes were still possible if inflation did not continue to ease.

For that reason, the central bank did not alter the section of the statement known as the ``balance of risks,'' which it kept tilted toward inflation as the bigger threat.

``All members agreed that the statement should continue to stress that some inflation risks remained and note that additional policy firming was possible,'' the minutes said.