Fed avoids rate hike as oil bubble pauses

WASHINGTON, August 5, 2008 (AFP) – The Federal Reserve, in a widely predicted move, kept its main interest rate unchanged at 2.0 percent Tuesday citing concerns about sputtering economic growth and inflationary pressures. The Dow Jones Industrial Average rocketed 331 points to close at 11,615.77 as investors cheered the announcement, although tumbling oil prices also boosted Wall Street’s spirits.

The Fed said that relatively low rates should eventually fire up growth going forward, but warned that multiple hurdles stand in the path of a potential economic revival.

“Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters,” the central bank cautioned.

Most economists expect the Federal Open Market Committee, chaired by Ben Bernanke, to keep the key federal funds rate on hold for some time to come.

“My view has been all along and it remains that the Fed is going to be on hold for a good deal of time,” said Josh Feinman, a chief economist at Deutsche Bank’s institutional investment management group DB Advisors.

Feinman said the Fed kept rates on hold because of fears that the world’s largest economy would “