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USA - INTEREST RATES

Fed holds US interest rates steady

2 min

The US Federal Reserve left the benchmark federal funds rate unchanged at 2 percent maintaining that inflation risks were higher while the risks to economic growth had eased.

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The Federal Reserve Wednesday left unchanged its federal funds rate at 2.0 percent, saying the risks of a sharp economic downturn have eased while inflation risks are higher.

"Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased," the Federal Open Market Committee said after a 9-1 vote.

"The Committee will continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability."

Dallas Fed president Richard Fisher dissented, calling instead for an increase in the federal funds rate at the meeting.

Although the statement offered no clear indication of the central bank's next move, some economists have argued the Fed is laying the groundwork for a hike in interest rates, possibly later this year. Others say Fed chairman Ben Bernanke is simply talking tough to keep a lid on inflation expectations.

"Recent information indicates that overall economic activity continues to expand, partly reflecting some firming in household spending," the FOMC statement said.

"However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh on economic growth over the next few quarters."

The panel said it "expects inflation to moderate later this year and next year. However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high."
  

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