Fed Keeps Rate at 5.25%, Drops Reference to `Firming' (Craig Torres)

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The Federal Reserve kept the benchmark U.S. interest rate at 5.25 percent and unexpectedly abandoned its tilt toward higher borrowing costs.

By Craig Torres

March 21 (Bloomberg) -- The Federal Reserve kept the benchmark U.S. interest rate at 5.25 percent and unexpectedly abandoned its tilt toward higher borrowing costs.

``Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth,'' the Federal Open Market Committee said today in Washington. While inflation is the ``predominant'' concern, the statement dropped a reference to ``additional firming,'' giving central bankers more flexibility on the direction of interest rates.

Policy makers said recent economic indicators have been ``mixed'' and acknowledged the persistent downturn in housing. Nevertheless, they repeated that ``the economy seems likely to continue to expand at a moderate pace over coming quarters.''

Bonds jumped and stocks staged their biggest rally in eight months as some traders read the change as a signal that the Fed will consider cutting rates by June. Other Fed watchers said the new wording doesn't necessarily mean a reduction is imminent.