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US leaves rates unchanged at 2% US leaves rates unchanged at 2%
(about 2 hours later)
The US central bank has left interest rates unchanged at 2%, citing inflation concerns and rejecting calls for a cut.The US central bank has left interest rates unchanged at 2%, citing inflation concerns and rejecting calls for a cut.
While the Federal Reserve had been tipped to leave rates on hold, analysts said a cut looked more likely after Lehman Brothers filed for bankruptcy.While the Federal Reserve had been tipped to leave rates on hold, analysts said a cut looked more likely after Lehman Brothers filed for bankruptcy.
The Fed has sought to soothe nerves and earlier injected $70bn (£39bn) into markets to boost liquidity.The Fed has sought to soothe nerves and earlier injected $70bn (£39bn) into markets to boost liquidity.
Central banks worldwide have faced the twin threat of quickening inflation and a wider economic slowdown.Central banks worldwide have faced the twin threat of quickening inflation and a wider economic slowdown.
"The downside risks to growth and the upside risks to inflation are both of significant concern to the committee," the bank's officials said."The downside risks to growth and the upside risks to inflation are both of significant concern to the committee," the bank's officials said.
The decision to leave rates at 2%, as it has been since April, was a unanimous decision. Michael Wallace, an analyst at Action Economics said: "The Fed's statement largely resisted market pressure for a more substantial capitulation."
US shares remained volatile with the leading Dow Jones Industrial Average down 106 points to 10,811 after the news. He said the assessment was "defiantly set at neutral", in expressing worries about both slowing economic growth and inflation.
However, it later ended more than 140 points higher at 11,059.02 as investors interpreted the Fed's unanimous decision as a sign that the economy was less fragile than some feared. The decision to leave rates at 2%, as it has been since April, was a unanimous move.
Another factor boosting the market were reports that insurance giant AIG might be able to access a loan from the Federal Reserve, that would prevent the firm from collapsing. US shares were volatile with the leading Dow Jones Industrial Average down 106 points to 10,811 after the news.
Certain traders had hoped the central bank would cut rates in a bid to boost the economy. However, it later ended more than 140 points higher at 11,059.02 as investors interpreted the Fed's decision as a sign that the economy was less fragile than some had feared.
Another factor boosting the market were reports that insurance giant AIG might be able to access a loan from the Federal Reserve, which would prevent the firm from collapsing.
Investment firm Lehman Brothers filed for bankruptcy on Monday, triggering market jitters and prompting a sharp fall in shares worldwide.Investment firm Lehman Brothers filed for bankruptcy on Monday, triggering market jitters and prompting a sharp fall in shares worldwide.
Fears have been raised that AIG could be the next firm to fold.
Serious risk
In light of such turmoil, certain traders had hoped the central bank would cut rates in a bid to boost the economy and warned that the Fed's latest move could be seen negatively.
Ian Shepherdson, lead US economist at High Frequency Economics said: "Not to acknowledge the catastrophes of the next few days runs the very serious risk that the Fed will be seen as Nero, fiddling while Wall Street burns."
While the Federal Reserve kept interest rates unchanged on Tuesday, it noted that stresses on financial markets had grown sharply and added that it would take further action if needed.While the Federal Reserve kept interest rates unchanged on Tuesday, it noted that stresses on financial markets had grown sharply and added that it would take further action if needed.
The central bank said "strains in financial markets have increased significantly and labour markets have weakened further." The central bank said "strains in financial markets have increased significantly and labour markets have weakened further".