"The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent," said the Federal Reserve in a statement released after its two-day meeting ended yesterday. It was the first meeting since August 7, 2007, the week the subprime mortgage liquidity panic began, that the Fed didn't cut interest rates. The Fed began cutting from a Fed funds rate of 5.25% in September 2007, reducing the short-term benchmark by 2.25% over the next 9 months. All indications are the next move is higher.

The Fed's relatively hawkish statement says, "The Committee expects inflation to moderate later this year and next year. However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high."

The Fed warns, "The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time. Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased. The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability."

Fed funds futures are showing a 64% chance of a 1/4 point hike by September. The Fed's next meetings are on August 5 and Sept. 15. (See the meeting calendar here.) The Chicago Board of Trade 30-Day Federal Funds Futures also show an 81% chance of a 2.5% rate by November.

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