Federal Reserve Chairman Ben Bernanke and his colleagues were expected to announce at the end of Wednesday's meeting that they decided for the eighth straight time to leave the federal funds rate unchanged at 5.25 percent.
That is where it has been since the Fed last changed rates June 29, when it raised the funds rate for a 17th consecutive time over a two-year period. That was the longest stretch of Fed rate hikes on record as the central bank sought to slow the economy and combat rising inflation pressures.
According to recent economic data, the Fed's effort seems to be working according to plan.
Economic growth slowed to an annual rate of just 1.3 percent in the January-March quarter, the slowest pace in four years.
That slow growth is having the desired effect of taking some of the pressure off tight labor markets. The unemployment rate inched up a tad to 4.5 percent in April with businesses creating just 88,000 new jobs, the weakest showing in 2½ years.
And the economic slowdown is helping reduce inflation. The Fed's preferred inflation gauge rose by just 2.1 percent for the 12 months ending in March, down from what had been a worrisome 2.4 percent 12-month increase for the period ending in February.
"Fed officials must feel they are in a pretty good place," said Mark Zandi, chief economist at Moody's Economy.com. "Growth has slowed and underlying inflation appears to be moderating, just according to their script."
Because the scenario for a soft landing for the economy appears to be unfolding, analysts said the Fed won't see any need to make changes. That will be a disappointment for those in financial markets, who have been hoping that the Fed will respond to the slowing economy by starting to cut rates.
Such hope was stirred at the Fed's last meeting, on March 21, when officials replaced wording on the possible need for "additional firming," the Fed's phrase for rate hikes, with the more neutral statement of "future policy adjustments."
Even that small wording change was enough to stoke investors' hopes that Fed rate cuts might be in the offing and sent stock prices soaring immediately after the meeting.
However, Fed officials from Bernanke on down have thrown cold water on the possibility of imminent rate cuts, stressing that while the economy has slowed, they still believe the biggest threat is that inflation will not slow as much as desired.
Some analysts believe the Fed could stay on hold for the entire year although others say they are still looking for one or possibly two rate cuts late in 2007 if inflation has fallen further by that time in response to below-par economic growth.
Many economists believe the economy is growing at around a 2 percent pace in the current spring quarter and will probably average around 2.5 percent in the summer — growth that will not be fast enough to keep the unemployment rate from rising further.
David Wyss, chief economist at Standard & Poor's in New York, said he expected the jobless rate to peak out at 5 percent by the end of this year.
"By the end of the year, the Fed may see enough evidence of economic slowness along with lower inflation to convince them that they can start cutting rates," Wyss said.
David Jones, chief economist at DMJ Advisors, said he was looking for at the most two rate cuts in the fall but stressed that "the timing and frequency of any rate cuts will depend critically on incoming information about the economy."
Lyle Gramley, a former Fed board member and economic adviser to Schwab Washington Research Group, said while he believed the Fed could leave rates along for the rest of this year, the central bank could quickly alter that stance if concerns about the economic slowdown start rising.
"The Fed is not going to put the economy through a ringer to get inflation down," he said. "If we get closer to a recession, they will cut rates."