WASHINGTON (AP) — The Federal Reserve left a key interest rate unchanged yesterday but triggered a strong rally on Wall Street as investors took hope the central bank might cut rates in the future.Fed chairman Ben Bernanke and his colleagues voted to keep the federal funds rate, the interest that banks charge each other, at 5.25 percent.

It was the sixth straight meeting at which the Fed has not changed the rate.

In the statement explaining its action, however, the Fed this time dropped language about possible future rate increases. Any “future policy adjustments” would depend on the performance of both inflation and the economy, according to the statement.

Financial markets saw that change as a sign the Fed was considering future rate cuts and was not just focused on raising rates.

Investor euphoria over the possibility of rate cuts pushed the Dow Jones industrial average up by more than 160 points in the hour of trading following the Fed’s mid-afternoon announcement.

Economists cautioned that investors probably were getting too enthusiastic about the likelihood the Fed would cut rates any time soon.

They noted the Fed statement also expressed increased worries that inflationary pressures have risen. The statement said that risks of inflation were the Fed’s “predominant policy concern”.

Analysts said the central bank appeared to acknowledge it is in a bind, caught between an economy being dragged down by troubles in the housing industry and stubbornly high inflationary pressures.

David Jones, chief economist at DMJ Advisors, said he did not expect any Fed rate changes before September at the earliest. At that time, he said if inflationary pressures have eased, the Fed might cut rates once or twice this year.

“This is a less favourable inflation environment and a less favourable economic environment,” Jones said. “They have got to let the dust settle on this very mixed picture before they do anything.”

The Fed’s discussions on Tuesday and yesterday occurred in a very different environment from their last meeting, January 30-31.

Since then, financial markets in the United States and elsewhere have given investors some stomach-churning days, including a 416-point drop in the Dow Jones industrial average on February 27.

That decline resulted in part from troubles in the mortgage lending industry and worries that recession risks were increasing.

The Fed, taking note of the weaker readings on the economy, said, “Recent indicators have been mixed and the adjustment of the housing sector is ongoing.”

But the Fed retained language from past statements that expressed belief the economy will keep growing at a moderate pace.