WASHINGTON -- The economy is sluggish and gasoline prices have hit a record. The stock market is booming and joblessness is low. The housing market is slumping and so is the value of the dollar. And inflation is up slightly and still alive.
But the Federal Reserve? It's as steady as a rock. For the seventh straight meeting, the nation's central bank decided yesterday to make no change in interest rates. It's been this way for almost 11 months, and could be that way for the foreseeable future.
With Chairman Ben S. Bernanke at the helm, the Fed is trying to steer its way through some potentially challenging economic times. It wasn't long ago that former Chairman Alan Greenspan said a recession was possible by the end of 2007, only to be contradicted by Bernanke.
The Fed's rate-setting committee left the benchmark overnight lending rate, used as a basis for all other short-term interest rates, at 5.25 percent yesterday, but the panel will keep a sharp eye out for rising inflation, its key concern. And so for now, short-term interest rates on home equity loans and other adjustable-rate loans will remain as they are.
The economy's opposing forces have created some dynamic tension that, at the moment, seemed to cancel each other out. The economy grew by a tepid 1.3 percent in the first quarter and inflation, excluding food and energy prices, rose by 2.1 percent, just enough to make the central bankers uncomfortable about lowering interest rates.
But they can hardly raise interest rates, either, since such a move might just be enough to deliver the recession that Greenspan said is possible. With yesterday's interest-rate decision, the Fed hopes to sail through the troubled waters of housing without causing a downturn.
"I don't think they've got a lot of room to move either way," said Nigel Gault, an economist at Boston's Global Insight, an economic consulting firm.
The slow growth rate suggests the economy has reached what many analysts call a "soft landing," where the economy grows just enough to keep inflation under control without an increase in joblessness and a business downturn.
In a terse statement, the Federal Open Market Committee, the Fed's rate-setting arm, said that despite the modest first-quarter growth, the economy "seems likely" to expand moderately in coming quarters.
Yet, it said, inflation, again excluding food and energy costs, "remains somewhat elevated. Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures."
That last comment carried some punch. Bank of America economist Peter E. Kretzmer said the phrase "high level of resource utilization" meant that the Fed wasn't likely to reduce interest rates until the unemployment rate, now at 4.5 percent, rises significantly.
"The labor market is very important right now," he said. If joblessness remains at its fairly low level by historical standards, the central bank is apt to continue holding interest rates steady, he said. But if companies begin to shed more workers, an interest rate-reduction is likely, he added.
Another key factor is the degree of the housing correction.
Kretzmer and Scott Anderson, a senior economist at Wells Fargo Bank, said the worst of the housing decline appears to have passed, and that there could be a pickup in the sector next year. Kretzmer said he would watch closely to see how home sales fare in the spring months.
But things aren't as rosy as the Fed indicates, said Peter Schiff, president of Euro Pacific Capital, a brokerage in Darien, Conn. He said the central bank "continued its long-standing bluff" that it can contain inflation and prevent a recession and also lower interest rates in the future.
In his bearish look at the economy, Schiff said that ultimately the central bank would have to increase interest rates to control inflation and prop up the dollar, worsening the recession he fears is coming.
But pessimism was not in the general picture yesterday as the stock market rose.
Kretzmer said he doubted the Fed would change its interest-rate policy at its next meeting, June 27-28, but if joblessness gets worse, there could be a reduction later in the year.
Anderson, of Wells Fargo Bank, said Bernanke has "done a fairly good job" since taking over for Greenspan last year. "I think he is in a pretty tight corner, balancing the risks," he said.
William Neikirk writes for the Chicago Tribune.