The U.S. Federal Open Market Committee decided today to keep its target for the federal funds rate at 5.25%.

The FOMC voted unanimously to leave rates unchanged. Today’s outcome was widely expected by economists.

An accompanying statement acknowledged some recent weakening in the economy, but otherwise mirrored the previous one issued on March 21 in which officials called for “moderate” economic growth and a gradual cooling of price pressures.

Officials repeated that inflation remains the “predominant policy concern” and that “future policy adjustments” will depend on incoming data.

Officials said the economy “slowed” in the first part of the year. Previously, it described the economy as “mixed.” The Fed repeated that the housing adjustment is “ongoing,” but that the likeliest scenario remains “moderate” economic growth in the months ahead. They also said core inflation remains “somewhat elevated” but should come down.

Bay Street analysts see rate cuts by the Fed likely coming later this year.

National Bank Financial says that, “Despite lacklustre economic growth in Q1 and slightly friendlier inflation reports, the Fed opted to keep its statement virtually unchanged at today’s FOMC meeting.”

“At this time U.S. monetary authorities are holding on to their forecast that growth will resume at a faster pace in the coming quarters. Under these circumstances and given the low unemployment rate in the U.S., the Fed’s predominant concern is that inflation will remain above its comfort zone,” NBF says.

“Like the Fed we are sticking with our forecast. We expect prolonged sub-par growth. Accordingly, we see the next Fed move being a rate cut,” NBF predicts. “The timing remains data dependent, with the latest non-farm payroll on the weak side, we still think a rate cut in August could surprise market participants.”

BMO Capital Markets says that it expects a Fed rate cut too, but probably not until the October meeting. “Inflation is likely on the cusp of peaking. Bonds should rally over the summer if we are correct on the housing and inflation call. In the meantime, the Canadian economy will outperform and the Bank of Canada will remain on the sidelines with its next move a rate hike, possibly by yearend, but more likely not until early 2008,” it says.

“ We continue to believe that the Federal Reserve will remain on hold for the next several meetings, given the uncertain prospects for the U.S. economy and inflation, although the odds of the Fed easing rates before the end of the year are mounting,” suggests TD Economics. “However, the Fed will not abandon its tightening bias before seeing a sustained easing in core inflation, in order to prevent being seen as soft on inflation, and to prevent inflation expectations from rising.”

“Judging by today’s FOMC statement, which did not have as soft a view on inflation as some were expecting after the lower core CPI and core PCE deflator readings in March, it’s going to take more than one month of data to assuage the Fed’s inflation concerns,” TD added.