The Fed Holds Rates Steady at 5.25 percent

The Fed held steady a key short-term rate at 5.25 percent. Ben Bernanke and The Fed calmed financial market  fears about a credit crunch and inflation. In its statement, the Fed noted that "financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing."

Fears of a credit crunch have caused stock market volatility in recent weeks as investors appear to be betting that the merger boom may be over.

Many economists and market watchers believe the Fed should not cut rates anytime soon since inflation is still a real threat. Those economists cite near record high oil prices and surging wheat and milk commodity prices.

The Fed also noted that "although the downside risks to growth have increased somewhat, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected." and it expects the economy "to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy."