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Despite recent reports showing no end to the housing slump and bond market jitters that have pushed long-term interest rates higher, simmering inflation is still the main focus at the Federal Reserve, policymakers confirmed Thursday.

And it likely will remain so as long as the U.S. economy keeps growing at a healthy clip.

Long-term interest rates have been rising recently amid turmoil for investors in the riskiest corners of the mortgage market, but the Fed’s steady-as-she goes policy for short-term rates seems to be working. Fed Chairman Ben Bernanke and his colleagues renewed that policy as their two-day midyear meeting  wrapped up Thursday.

In a statement after the meeting of the Fed's Open Market Committee, central bankers said, "sustained moderation in inflation pressures has yet to be convincingly demonstrated.” The group left the benchmark overnight rate unchanged at 5.25 percent.

Though energy and food prices have been rising this year, the “core” price gauge the Fed follows closely has been easing. The latest data, for April, show prices excluding those volatile categories rising at a 2 percent rate — the upper end of the range the Fed is widely believed to be targeting.

Still, Fed officials have stressed they fear prices could pick up speed again, especially if higher energy costs begin to push up the costs of other goods. Higher corn prices, in part the result of strong demand due to rapidly expanding ethanol production, also could spill over into other food prices. All of which has kept central bankers worried, at least in public, about keeping inflation under control.

"Although core inflation seems likely to moderate gradually over time, the risks to this forecast remain to the upside,” Fed Chairman Ben Bernanke said in a June 5 speech.

But the Fed has also been keeping a close watch on the widening slump in the housing market, which has gone from bad to worse since the Fed’s last meeting in May. Home prices and sales activity keep falling. Lenders have tightened borrowing standards. As defaults and foreclosures have risen, the bond market — which determines long-term interest rates including mortgage rates — has demanded higher rates to make up for the risk that more borrowers may default.

Still, while recent headlines of big losses on mortgage-backed bonds have given investors the jitters, the problems in the mortgage market haven’t risen to a level that will prompt the Fed to act, according to Stuart Hoffman, chief economist at PNC Financial Services Group.

“There are definitely people getting burned, and bad decisions have been made," he said. “But at this point it seems to be more private pain — both for the borrowers and for the lenders — than it is public pain. From the Fed's point of view, they’re still going to focus on inflation and the general well-being of the economy in their mandate.”

After barely moving forward in the first quarter of the year, the economy picked up steam in the quarter just coming to a close, with consumers spending at a healthy clip and businesses boosting hiring and investment.

As long as the economy continues to post steady growth, the Fed is likely to maintain its guard and focus on the risk of higher inflation.

Fed will raise rates by the end of '07 - your thoughts?

"Certainly the business sector has returned decisively to expansion mode," said Julia Coronado, a senior economist at Barclays Capital. "The housing sector is still uncertain, but given where we are in the labor market, any pickup in growth by definition means higher pressures on inflation."

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