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Updated from 2:23 p.m. EDT

As expected, the

Federal Reserve's

policy-making arm, the Federal Open Market Committee, left its fed funds rates unchanged at 1.75% and maintained its neutral bias, saying that the risks of weakness in the economy are balanced with the risks of price inflation.

But the statement accompanying its decision was slightly more upbeat about the second half of this year, economists said. In that statement, the

Federal Reserve

said that both the upward impetus from the swing in inventory investment and the growth in final demand appear to have moderated, but that it expects final demand to pick up over coming quarters.

"I wouldn't describe it as more cautious. It's the first time I've seen this confidence that the committee expects economy to pick up in coming quarters. They hadn't told us they expected pick up in final demand this way," said Anthony Karydakis, senior financial economist at Banc One Capital Markets.

Some economists were surprised by the lack of any mention of the current deterioration in the stock market.

Karydakis felt that omission was disappointing to investors as it suggests the Fed isn't planning on coming to the market's rescue: "They very conspicuously avoided mentioning that

the market meltdown could impact prospects for recovery," Karydakis said. "That they are simply ignoring the big event out there that could potentially derail that recovery is somehow a little bit striking. It gives a somewhat less realistic assessment of the current environment," he said.

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Diane Swonk, chief economist and director of economics for Bank One Corp. said she didn't think the commentary on the stock market would have been helpful. "There's no question the Federal Reserve would ease again if we were in a liquidity crunch, but we're obviously not. The market reaction to



today has actually been a pretty orderly one," she said. "If the case arises they will certainly do it, but to signal that would do more harm than good."

Before Wednesday's announcement, many economists were expecting the Federal Reserve to raise interest rates this fall. In 2001 the central bank cut interest rates 11 times to combat economic recession. Diane Swonk predicted the Federal Reserve will raise rates in November.

In its statement, the FOMC wrote, "The information that has become available since the last meeting of the committee confirms that economic activity is continuing to increase. However, both the upward impetus from the swing in inventory investment and the growth in final demand appear to have moderated.

"The committee expects the rate of increase of final demand to pick up over coming quarters, supported in part by robust underlying growth in productivity, but the degree of the strengthening remains uncertain."

At its last meeting on May 7, the Federal Open Market Committee wrote that "economic activity has been receiving considerable upward impetus from a marked swing in inventory investment. Nonetheless, the degree of the strengthening in final demand over coming quarters, an essential element in sustained economic expansion, is still uncertain."

The U.S. economy grew 5.6% in the first quarter, but that growth was largely driven by a clearing out of inventories after a buildup late last year. Business spending has remained slack -- as a component of GDP it fell 5.7% in the first quarter -- and until it picks up, it will be hard for the economy to churn out strong growth.


durable goods orders report, a good indicator of business spending in the manufacturing sector, showed that while demand continues to outpace production, business spending is still sluggish. Durable goods orders, or orders for long-lasting goods like missiles and washing machines, grew 0.6% in May, beating economists' expectations for a 0.5% increase and the previous month's 0.4% increase, according to the U.S. Census Bureau.