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Fed's Stance on Inflation to Be Watched Closely By Markets

Changes in the Federal Funds Rate (since 2006)

Date
Rate
Change
Jan 31, 2006 4.50 + 0.25
Mar 28, 2006 4.75 + 0.25
May 10, 2006 5.00 + 0.25
Jun 29, 2006 5.25 + 0.25
Sep 18, 2007 4.75 - 0.50

U.S. Federal Reserve policy-makers resumed their meeting Thursday and were expected to announce in early afternoon that after two days of deliberation they were leaving target borrowing costs unchanged.

A Fed official said the meeting started at 9 am as scheduled.

Market interest has centered on whether the Fed, meeting against a backdrop of an economy showing signs of gathering strength, would acknowledge in its statement that inflationoutside energy and food costs has moderated.

Such an observation might lead markets to bet the Fed might feel more open to the idea of lowering borrowing costs in the future to provide a boost for an economy still feeling the drag
from downtrodden housing markets.

Laurence Meyer, former Federal Reserve governor and vice chairman of Macroeconomic Advisers, told CNBC that core inflation--which strips out volatile food and energy costs--will remain the Federal Reserve’s primary concern.

"(The Federal Reserve) needs to recognize that the readings on core have been improved, but they also need to indicate that they're not satisfied -- that the biggest risk is still that inflation will fail to continue to moderate,” Meyer said Thursday. “This is a very good opportunity for (the Fed) to indicate that 2% is better than 2.5%, but it's not good enough yet.”

He said that the Federal Reserve will remain focused on core inflation rather than the headline number, which includes food and energy.

A statement outlining the policy-setting Federal Open Market Committee's decision and its view of the economy is expected at about 2:15 p.m.

The U.S. central bank has kept its target for overnight interest rates -- which influence borrowing costs broadly throughout the economy -- unchanged at 5.25% since June
of last year.