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    =DJ Fed Leaves Rates At 5.25%; Still Sees Inflation Risk(DJ)

  By Brian Blackstone and Campion Walsh
  Of DOW JONES NEWSWIRES
  WASHINGTON (Dow Jones)--The Federal Reserve on Wednesday left the
federal funds rate unchanged at 5.25% for a third-straight meeting
amid signs of slower growth but kept the door open for higher rates
if inflation persists.
  An accompanying statement largely mirrored the one issued in
September, repeating that the economy is moderating due to a
"cooling" housing sector, that "some inflation risks remain" and
that any additional rate hikes will depend on the economic
outlook.
  The statement suggests the likeliest scenario is a prolonged
period of policy stability, assuming the Fed's forecast of slower
growth and moderating inflation unfolds.
  The Federal Open Market Committee, as universally expected in a
Dow Jones Newswires survey, voted 10-1 to keep the federal funds
rate at 5.25%, where it has stood since late June following
17-straight hikes dating back to mid-2004.
  Richmond Fed President Jeffrey Lacker dissented for a
third-straight time, again preferring another quarter-point hike
in the Fed funds rate.
  "Economic growth has slowed over the course of the year," the FOMC
said. "Going forward, the economy seems likely to expand at a
moderate pace."
  Fed watchers had expected little change in the Fed's assessment of
policy, since not much has changed on the economic and inflation
front over the past six weeks to alter the Fed's view that lower
energy prices and a moderating economy should ease price pressures
that, for now, remain uncomfortably high.
  "Some inflation risks remain," the FOMC said, repeating its
previous assessment. The Fed again cited the "high level of
resource utilization" but dropped its reference to energy prices
as having the potential to sustain inflation.
  It also said inflation should "moderate" due to lower energy
prices, contained inflation expectations and past rate hikes.
  Monthly inflation numbers have cooled from elevated spring and
early summer gains, with the consumer price index excluding food
and energy posting three-straight 0.2% gains through September.
The overall CPI, meanwhile, fell last month due to sharply lower
energy prices, which should take pressure off energy-related core
items like transportation in coming months.
  Yet the annual core CPI rose to a decade high of 2.9% in
September. And the Fed's preferred measure - the core personal
consumption expenditures price index - is running at a 2.5% rate,
well above the Fed's 1% to 2% comfort zone.
  Against that backdrop, and with officials such as Fed Vice
Chairman Donald Kohn warning that higher inflation poses a greater
risk than weak economic growth, it would have been tough to drop the
tightening bias.
  "To say anything else would harm the Fed's (inflation-fighting)
credibility," said Tony Crescenzi of Miller Tabak in a research
note prior to the Fed decision.
  The economy, meanwhile, appeared to have slowed sharply in the
third quarter due in part to a steep slide in housing, conforming
to Fed Chairman Ben Bernanke's projection that a "substantial"
housing correction could slice one percentage point off second
half growth.
  Gross domestic product figures due Friday are expected to show
only around 2% growth in the third quarter, down from 2.6% in the
second and well below the economy's growth potential of around 3%
or higher.
  But resilient consumer spending outside of housing and
automobiles, aided by falling gasoline prices, rising equity
values and a tight labor market, should bolster the economy in the
fourth quarter, so any slack generated by sub-trend growth could be
brief.
  -By Brian Blackstone and Campion Walsh; Dow Jones Newswires;
202-828-3397; brian.blackstone@dowjones.com and
campion.walsh@dowjones.com
  (Benton Ives-Halperin contributed to this article)
  (END) Dow Jones Newswires
  October 25, 2006 14:13 ET (18:13 GMT)
  Copyright (c) 2006 Dow Jones & Company, Inc. - - 02 13 PM EDT
10-25-06

Keywords:  CURRENCY ENERGY FINANCIAL ECONOMY GENERAL
13:13:34   10/25/06