WASHINGTON (AP) -- The longest unbroken stretch of interest rate increases in recent history is over. And the stakes couldn't be higher for Federal Reserve Chairman Ben Bernanke. Six months into the job, Bernanke was confronted with a tough choice: Hold rates steady and risk an inflation flare-up or boost them again and risk a sharper economic slowdown. He and all but one of his colleagues on the Federal Open Market Committee chose Tuesday to pause its more-than-two-year rate-raising campaign. The impact on the economy may be a defining moment in Bernanke's tenure as Fed chairman. Giving millions of borrowers at least a reprieve, the central bank held a key interest rate steady at 5.25 percent. The lone dissenter urged another quarter-point increase. On Wall Street, stocks dropped on worries that the break was only temporary and that more rate increases might be in store. The Dow Jones industrials fell 45.79 points to close at 11,173.59. The decision to take a breather comes as economic growth is slowing -- a development that Fed policy-makers suggested should eventually lessen inflation risks posed by lofty energy prices. To fend off inflation, the Fed had bumped up interest rates 17 times -- in modest quarter-point increments -- since June 2004. The goal is to slow the economy enough to prevent inflation from taking off while not crimping activity so much that it brings on recession. "If inflation turns higher than people feel comfortable with, then Bernanke will be known as the chairman who let that happen, which will hurt the Fed's credibility in fighting inflation in the future," said Victor Li, economics professor at Villanova School of Business. The decision to hold the federal funds rate steady means that commercial banks' prime lending rate -- for certain credit cards, home equity lines of credit and other loans -- stays at 8.25 percent. That's welcome news for borrowers, who have watched interest rates march higher over the last two-plus years. Before the Fed began to tighten credit in 2004, the prime rate stood at 4 percent, the lowest since 1958. The federal funds rate, meanwhile, was at 1 percent, a 46-year low. The Fed had sliced interest rates to rescue the economy from the 2001 recession, the terror attacks and a wave of accounting scandals on Wall Street. Tuesday's decision was difficult for the Fed. The lone dissenter was Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, Va., who said he would have preferred another quarter-point increase. It marked the first time since Bernanke took over that the Fed decision was not unanimous. Bernanke and his colleagues observed that "economic growth has moderated from its quite strong pace earlier this year," partly reflecting a cooling in the once-hot housing market as well as the impact of the Fed's interest rates hikes and high energy prices. The economy, which grew in the opening quarter of this year at a 5.6 percent pace, the fastest spurt in 2 1/2 years, slowed to less than half that pace -- 2.5 percent, in the April-to-June quarter. Analysts expect growth for the rest of the year to continue in the range of 2.5 percent to 3 percent. "The Fed seems to have entered a period of what doctors would call watchful waiting to see if more dosing is required or if the treatment already administered will have the desired effect," said Terry Connelly, dean of the Ageno School of Business at Golden Gate University in San Francisco. "Bernanke is being tested inside the Fed as well as in the court of market opinion."



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