The Federal Open Market Committee met yesterday and decided once again to hold the federal funds rate steady at 2%. Here is the statement they released to explain their decision:

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent.

Strains in financial markets have increased significantly and labor markets have weakened further. Economic growth appears to have slowed recently, partly reflecting a softening of household spending. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth.

Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain.

The downside risks to growth and the upside risks to inflation are both of significant concern to the Committee. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Ms. Cumming voted as the alternate for Timothy F. Geithner.

It looks like inflation is too high for the Fed to feel good about cutting rates again, even though the stock market turmoil made them give another cut serious consideration. The previous rate cuts in the last 9 months have not really begun to affect the economy overall. It usually takes 12 months or more for an interest rate cut to make itself felt across a broad spectrum of the economy.

As inflation edges ever closer to 6%, I believe it is only a matter of time until the Fed starts raising rates again. If the economy stabilizes this will probably happen in the middle of next year.

If you are thinking about refinancing your mortgage, then the next 3-6 months will be the time to do it. With the federal takeover of Fannie Mae and Freddie Mac, interest rates have fallen in the last 2 weeks. Interest rate increases are on the horizon. If you refinance now, you will be glad you did 12 months from now.