Fed holds rates steady again

The nation's central bank keeps a key short-term rate at 5.25% but Bernanke & Co. still worried about inflation.

The Federal Reserve left a key short-term interest rate unchanged Thursday and indicated it was still worried about inflation, a sign the central bank will leave rates alone for a while instead of cutting them despite concerns about a sluggish economy.

In its widely watched statement, the Fed eliminated its characterization of core inflation as being "elevated," saying that "readings on core inflation have improved modestly in recent months."

Video More video


CNN's Ali Velshi says consumers are worried about jobs and the business climate.
Play video




But the Fed added that "a sustained moderation in inflation pressures has yet to be convincingly demonstrated." The statement came out at the end of a two-day meeting for the Fed in Washington.

Investors seemed unsure how to react to the news. Stocks extended early gains right after the Fed's announcement but wound up pulling back, closing mixed for the day.

Treasury bonds fell, pushing the yield on the benchmark U.S. 10-year Treasury note up to 5.10 percent from about 5.08 percent late Wednesday. Bond prices and yields move in opposite directions.