The Federal Reserve, confronted with surging oil prices and a slumping housing market, cut a key interest rate by a quarter-point Wednesday, but signaled that may be all the rate relief the economy needs right now.
The Central Bank lowered the federal funds rate to 4.5%, as had been expected. But while financial markets had hoped for a clear signal that further rate cuts could be forthcoming, the Central Bank instead signaled that the September and October rate cuts may be it.
While economists are worried that growth will slow dramatically in the current quarter under the impact of a deepening housing slump, a severe credit crisis and record-high oil prices, the Fed sounded a more upbeat tone.
The Central Bank also expressed continued worries about inflation and said it believed after the two rate cuts, the risks between weak growth and higher inflation were roughly balanced.
"The odds of another rate cut at the December meeting are substantially less than they were before this statement." said David Jones, chief economist at DMJ Advisors in Denver. Jones said he still expected one more rate cut to deal with a weak economy, but that it will most likely come at the Fed's January meeting.
Wall Street sagged a bit immediately after the announcement, but then quickly regained its footing and was up more than 120 points in late afternoon trading.
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