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US interest rates left unchanged | US interest rates left unchanged |
(about 3 hours later) | |
The US Federal Reserve has kept its key interest rate unchanged at 2% as it grapples with the twin dangers of possible recession and high inflation. | The US Federal Reserve has kept its key interest rate unchanged at 2% as it grapples with the twin dangers of possible recession and high inflation. |
Explaining their decision, policymakers said economic growth was likely to remain weak for some time while the outlook for inflation was "uncertain". | |
Consumer prices rose at their fastest monthly rate in 11 years in June but oil prices are currently falling. | |
The Fed cut rates aggressively in late 2007, but have frozen them since April. | The Fed cut rates aggressively in late 2007, but have frozen them since April. |
'Tight credit' | |
The Fed's rate setting committee voted 10 to one to keep rates where they are, with Richard Fisher dissenting in favour of a rate hike. | |
Experts say uncertainty over how severe and prolonged the economic slowdown will be is making the Fed cautious about any shift in policy. | Experts say uncertainty over how severe and prolonged the economic slowdown will be is making the Fed cautious about any shift in policy. |
The continued slump in the housing market and its impact on consumer confidence has made any imminent rate rise unlikely despite signs of increasing inflationary pressures. | The continued slump in the housing market and its impact on consumer confidence has made any imminent rate rise unlikely despite signs of increasing inflationary pressures. |
My view has been all along and it remains that the Fed is going to be on hold for a good deal of time Josh Feinman, Deutsche Bank | |
In a statement, the central bank said "tight credit conditions, the ongoing housing contraction and elevated energy prices are likely to weigh on economic growth over the next few quarters". | |
In addition, it warned that "inflation has been high and some indicators of inflation expectations have been elevated". | |
Economic uncertainty | |
Data published on Tuesday showed that the services sector contracted again in June but not by as much as experts had forecast. | Data published on Tuesday showed that the services sector contracted again in June but not by as much as experts had forecast. |
Second-quarter gross domestic product (GDP) growth was a stronger-than-expected 1.9%, on an annual basis, although this was aided by government stimulus measures. | Second-quarter gross domestic product (GDP) growth was a stronger-than-expected 1.9%, on an annual basis, although this was aided by government stimulus measures. |
Unemployment, meanwhile, has risen to a four-year high while consumer spending is weak, rising only 0.2% in June. | Unemployment, meanwhile, has risen to a four-year high while consumer spending is weak, rising only 0.2% in June. |
Some analysts believe the Fed will adopt a "wait and see" stance as long as the economic outlook does not deteriorate markedly. | |
"My view has been all along and it remains that the Fed is going to be on hold for a good deal of time," said Deutsche Bank's Josh Feinman. |