Fed May Leave Rate Steady, Debate Cost of Reducing Inflation

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Federal Reserve policy makers will probably keep interest rate unchanged at 5.25 percent, for a second month today as they remain divided over the costs of clamping down on inflation.  The Fed lifted rates 17 times from June 2004 though June this year.

The Fed's case for doing nothing is strengthened by reports yesterday showing a plunge in home building and a drop in wholesale prices.

The debate boils down to competing ideas about how inflation works and the consequences of reducing it, Fed-watchers say. Most Federal Open Market Committee members appear worried about the impact on consumer spending and jobs if rates are pushed higher.  Dissenters warn that falling behind on inflation will do greater harm.

The Fed will announce its decision at about 2:15 p.m. in Washington .