Which way for rates?

The Federal Reserve is widely expected to hold its benchmark federal funds target rate steady at 2 percent when it meets today, after seven cuts since September. But the outlook for the rest of the year is less clear.

A rate hike would boost income on certificates of deposit and savings accounts but could bring losses for bonds, whose prices move in the opposite direction, and stocks, as corporate borrowing costs increase. At the same time, mortgage rates, which have been little changed despite the Fed rate cuts, could rise.

Earlier this year, many expected the Fed to keep rates steady to give lower borrowing costs a chance to spur the economy. But Fed officials hinted recently that inflation could prompt them to raise rates.

Barclays economist Dean Maki thinks rates could reach 2.5 percent by year-end though he thinks the Fed will stand pat today. But Jay Brinkmann, a vice president of the Mortgage Bankers Association, says the weak economy will keep the Fed from hiking rates until early 2009.