Fed holds rates steady for now

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The Fed didn't signal that a rate increase was imminent, instead leaving the timing open.

However one member Richard Fisher, president of the Federal Reserve Bank of Dallas, wanted to increase rates at Wednesday's meeting. Fisher, who has a reputation for being extra vigilant on inflation, was the sole dissenter.

"The needle is shifting more to greater concerns over inflation as opposed to economic growth," said Lynn Reaser, chief economist at Bank of America's Investment Strategies Group. "That means the Fed's next move in interest rates will be up but the Fed left its options open with respect to timing."

Although Fed policymakers believed the economy would eventually gain some traction, they acknowledged that conditions are delicate and the economy is not out of the woods yet.

"Labor markets have softened further and financial markets remain under considerable stress," the Fed said. "Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters."

The economy has grown at a snail's pace in recent months. And, employers have cut jobs every month so far this year. The unemployment rate jumped from 5 percent in April to 5.5 percent in May, the largest one-month increase in two decades. The unemployment rate is expected to keep on rising in the months ahead, even if economic growth improves somewhat.

Hours before the Fed's decision, the government released a report underscoring the depth of the housing slump. New-home sales fell 2.5 percent in May, while home prices were down 5.7 percent from a year earlier, the Commerce Department said.

Mortgage rates are rising spurred by investors' concerns about inflation. Those higher rates spell yet more headaches for the flailing housing market.

In a string of speeches over the past few weeks, Bernanke and his colleagues have ramped up tough anti-inflation talk. They've done that to rein in inflation expectations of consumers, investors and businesses. If those groups think prices will keep on rising, they'll act in ways that can worsen inflation.

Bernanke, in a rare public utterance for a Fed chief, also has sounded a warning that the slide in the U.S. dollar could contribute to a rise in inflation. He has sought to use words instead of action to bolster the dollar and try to lessen inflation pressures.

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