Phillips Curve Dead? Fed Holds Steady

By John J. Edwards III
Staff Reporter

Surprising slightly more than half the herd on Wall Street, the

Federal Reserve's

Federal Open Market Committee voted to leave the Fed funds interest rate steady at 5.50%.

The bond and equity markets (except the tech-driven

Nasdaq Composite Index

) have traded lower today ahead of the decision but are off their intraday lows. Now that the nondeed is done, it should be clear within a few minutes whether the knee-jerk relief rally some market mavens have expected will come to fruition.

Mickey Levy, chief economist at

NationsBanc Capital Markets

, said the Fed's inaction endorses the view that the quick-running economy is slowing on its own and needs no immediate braking by Washington. "

Greenspan

is very cautious and prudent, and they're seeing a slowdown in the economy, especially on the demand side that he mentioned in the last tightening," Levy said. He pointed to the April retail sales report, which came in slightly more sluggish than most economists expected.

Levy praised the Fed policy makers for boldly opting against a rate increase despite the startlingly low 4.9% unemployment rate. "It really reflects their pragmatism and their delinkage with the Phillips-curve bugaboo," he said.