INSTANT VIEW: Fed leaves rates unchanged as expected

NEW YORK (Reuters) - The U.S. Federal Reserve held its federal funds rate steady at 2.0 percent, as expected, on Tuesday in an effort to nurse the economy back to health without further exacerbating inflation.

"Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the committee," the Federal Open Market Committee said in a statement today in Washington.

COMMENTS: JOE DAVIS, CHIEF ECONOMIST, VANGUARD, MALVERN, PENNSYLVANIA: "There are not any surprises here. They are trying to navigating a very tough climate, In this environment the best is to do nothing. They are still expecting the economy to firm in 2009."

"In the short-term, it's hard to envision this scenario (of a rate hike). For that to happen, you would need to see things improving significantly. The labor market remains a wildcard at this time. There are other headwinds such as tight credit conditions."

"You will have a dissent going forward to underscore their concerns about inflation. It's indicative of the open atmosphere at the Federal Reserve at this time."

"I don't expect any adverse market reactions."

MANNY WEINTRAUB, FOUNDER OF MONEY MANAGEMENT FIRM INTEGRE ADVISORS, NEW YORK:

"I don't think they're saying anything new. I think the oil price move lower gives them the ability to hold rates steady without sacrificing too much in terms of the dollar's recent strength.

"I also think weakening European economy gives them room to hold steady. If inflation moderates you can keep rates lower. It's good to keep rates lower because that helps repair the balance sheets of the U.S. banks."

SCOTT FULLMAN, DIRECTOR OF DERIVATIVE INVESTMENT STRATEGY AT BROKER-DEALER WJB CAPITAL GROUP:

"The stock market had a substantial upward move very quickly after the announcement. Profit taking alleviated the upward pressure and returned the benchmarks back to their pre-announcement levels. The Fed basically is concerned about inflation and the slowing economy and apparently feels that taking no action at this time is better than making a change in monetary policy. They did note that they stand ready to make a decision on interest rates if necessary." LEN BLUM, MANAGING DIRECTOR FOR WESTWOOD CAPITAL, NEW YORK:

"The big news for the market -- almost more than the FOMC -- is oil. The Fed is getting a little bit of relief because oil (is below $120 a barrel) and commodity prices are coming down. You can't get away from what caused the recession which is the weaker consumer who has been battered by rising prices at the grocery store and at the gas pump and facing a weaker employment picture. The consumer is hurting and consumer demand drives 70 percent of GDP." SUBODH KUMAR, CHIEF INVESTMENT STRATEGIST, SUBODH KUMAR & ASSOCIATES, TORONTO:

"The Fed needs to avoid the risks Japan faced in the early 1990s, so I wanted to see that it had maximized flexibility in all three areas: growth, inflation and credit. By referring to all three things, it emphasized that it remains flexible. I would contrast this with the ECB's recent statements. The decision not to raise rates was the correct one, and it has given itself room to act according to what needed. The stock market may be encouraged a bit by the fact that there was only one dissent."

GARETH SYLVESTER, SENIOR CURRENCY STRATEGIST, HIFX, SAN FRANCISCO:

"Overall, I think it is fairly balanced statement. The broader question is being how are the FOMC going to balance the risk to growth versus the risk to inflation...What they are saying is they're looking for moderation in inflation, promotion of economic activity, which is the ideal scenario. They will continue to assess incoming data and take the necessary actions. It does indicate that for the time being, rates will be left on hold." MARKET REACTION: STOCKS: The benchmark US S&P500 stock index firmed slightly and was trading around 1,277 after the Fed statement; BONDS: US 10-year Treasury note yields rose slightly to around 3.99 percent; DOLLAR: The US dollar weakened slightly with the euro quoted around $1.5460 and the yen around 108.20;