The Federal Reserve kept its benchmark interest rate at 5.25 percent yesterday for a second month as slowing growth and a slide in oil prices suggest lower inflation in coming quarters.

"Inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations and the cumulative effects of monetary policy actions," the Federal Open Market Committee said in a statement after meeting in Washington.

Chairman Ben S. Bernanke predicts that the economy, buffeted by a housing slump, will cool enough to ease inflation after 17 rate increases in the two years to June. He must balance inflation that's still above his comfort zone with the concerns of some officials that tighter credit will push up unemployment and reduce spending.

The Fed dropped its description of the housing slowdown as "gradual," a possible sign that residential real estate, where industry groups warn of price declines, is growing in importance as policymakers consider their next move.

"Moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market," the Fed said. Few other changes were made to the statement, compared with the language used in August.

The FOMC's decision left the target for the overnight lending rate between banks at the highest level since March 2001. That meant commercial banks' prime interest rate -- for certain credit cards, home equity lines of credit and other loans -- would stay at 8.25 percent. Jeffrey Lacker, president of the Richmond Fed, dissented for a second consecutive meeting in favor of a rate increase.

The Fed continued to signal vigilance on inflation, a sign that it isn't yet satisfied with the pace of price increases.

"The committee judges that some inflation risks remain," the statement added. "The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information."

Treasury notes pared gains after the decision, as did stocks. The dollar was little changed.

"They spelled out reasons why inflation will moderate, and the market is taking that as a sign that they may be on hold for perhaps a bit longer than previously anticipated," said American Century Investments fund manager Jeremy Fletcher, who manages $1.8 billion of Treasury inflation-protected securities in Mountain View, Calif. "Having a dissent out there allows the Fed in general to show they are still concerned about inflation."

Crude oil is down about 20 percent since the Fed last met and has wiped out all the gains for the year, strengthening the case for holding rates steady. In addition to raising costs for manufacturers, oil's surge to a record in July hurt confidence among consumers, whose spending accounts for more than two-thirds of gross domestic product.

"The Fed is in a holding pattern here," said Paul Kasriel, director of economic research at Northern Trust Securities in Chicago and a former Fed economist. "With inflation above their target and uncertainty about how large the slowdown will be, they have no choice but to stay with a bias toward tightening. This is typical Fed behavior."

All 110 economists surveyed by Bloomberg News predicted yesterday's decision. Traders pegged the likelihood that rates will be unchanged for the rest of the year at 97 percent, according to the price of futures tied to the fed funds rate on the Chicago Board of Trade yesterday morning.

Economic reports are mixed. Housing starts fell 6 percent last month to a three-year low, and a measure of wholesale prices fell, according to government figures Tuesday. A report on Sept. 15 showed consumer prices rising at half the pace of the previous month in August. Still, annual consumer inflation rates are above levels several policymakers consider desirable.

"The Fed is locked in here for the next several meetings," said Brian Sack, senior economist at Macroeconomic Advisers LLC in Washington and a former economist at the Fed's Division of Monetary Affairs. "The consumer will remain resilient, and if that is the case, the economy can weather this downturn in housing activity and we'll actually see growth recover next year, and the Fed will be left sitting on hold."

Economists, including the Fed's staff, are trying to assess how lower oil prices, a faltering housing market, a tight labor market and rising wages play into their forecast that slowing growth will cool price pressures.

The unemployment rate fell to 4.7 percent in August from 4.8 percent in July. The Fed staff predicted in August that the economy will grow Below its potential for the next six quarters.

The Fed is keeping its options open. It did not foreclose the possibility of raising rates if there were signs inflation was breaking out.

"Some inflation risks remain," the Fed said. "The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth."

With reports from the Associated Press