Even in the face of ongoing uproar on Wall Street, the FOMC kept the federal funds rate at 2% at its latest meeting.  Easing energy prices pushed the Consumer Price Index down 0.1% in August.  Slowing auto sales hampered Industrial Production in August as it was off 1.1%.  Last, New Residential Construction decreased 6.2% during August as the housing correction continues. 

Federal Open Market Committee Meeting
The FOMC kept the federal funds rate at 2% for the third straight time, citing concerns over the weakening labor market and continued turmoil in financial markets.  The committee noted that "economic growth appears to have slowed recently" and expressed many concerns, specifically, the labor market, financial markets, restricted credit conditions, the housing downturn, and high energy prices.  The committee appeared more cautious about the general economic outlook, but expects that "over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth."  In its statement, the FOMC expects inflation to decline in the coming months, but stated "the inflation outlook remains highly uncertain."   Moreover, the FOMC "expects inflation to moderate later this year and next year'" and that the "downside risks to growth and the upside risks to inflation are both of significant concern to the committee." Looking ahead, the Fed gave no indication of its plans to adjust rates. 

Consumer Price Index
The Consumer Price Index (CPI) fell 0.1% in August, after increasing 0.8% in July. The decrease was driven by a fall in energy prices, which declined 3.1%.  Food inflation continued its long rise as prices rose 0.6% for the month.  The core CPI, which excludes food and energy prices, inched up 0.2%.  On a year-ago basis, the top-line CPI increased 5.4% while the core CPI is up 2.5%.   Fears of inflation kept the Fed from lowering rates at its latest meeting and if inflation starts to pick-up again, the Fed may take corrective measures. 

Industrial Production
Industrial production decreased 1.1% in August, which was more than expected. In July, Industrial Production rose 0.1%, downwardly revised from a 0.2% gain.  Utility output plunged 3.2% during the month.  Manufacturing was off 1.0% and mining fell 0.4% in August.  Capacity utilization declined to 78.7%, its lowest level since 2004.  With continued weakness in residential investment, auto production, and in the broader economy, expect industrial production to remain weak this quarter. 

New Residential Construction
Housing starts were off 6.2% in August to 895 thousand units, following a decrease of 12.4% in July.  Permits for new housing also fell, down by 8.9% during August.  Compared to August of 2007, housing starts are down 33.1%.  Despite low mortgage rates, there remains little demand for housing because of continuing problems in financial markets, declines in household wealth, and a soft labor market.