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US interest rates left unchanged | |
(about 7 hours later) | |
US interest rates have been kept on hold, despite mounting fears about the state of the economy. | |
Analysts had widely predicted the US Federal Reserve would leave rates at 5.25% for a 13th month, and that was the unanimous verdict of the Fed panel. | |
Concerns over the economy's health have been mounting amid a rise in bad debts, particularly in the housing sector. | Concerns over the economy's health have been mounting amid a rise in bad debts, particularly in the housing sector. |
Elsewhere, signals are mixed, with growth higher than expected but job creation slowing and inflation high. | Elsewhere, signals are mixed, with growth higher than expected but job creation slowing and inflation high. |
Lending worries | Lending worries |
US markets have been oscillated wildly in recent weeks as worries about the housing market have mounted. | US markets have been oscillated wildly in recent weeks as worries about the housing market have mounted. |
The Fed acknowledged the turbulence and said the downside risks to the economy had "increased somewhat". | |
But the Fed continued to state that the predominant risk remained that inflation "will fail to moderate as expected". | |
While the property market has been hit by a prolonged slump, sub-prime lenders have been bearing the brunt of the fall. | While the property market has been hit by a prolonged slump, sub-prime lenders have been bearing the brunt of the fall. |
A number of such companies - which lend money to people with poor credit histories - have issued profit warnings. | A number of such companies - which lend money to people with poor credit histories - have issued profit warnings. |
Others, including American Home Mortgage, are teetering on the brink of bankruptcy. | Others, including American Home Mortgage, are teetering on the brink of bankruptcy. |
Wider concerns | Wider concerns |
Elsewhere the Fed is still facing a tough balancing act to keep the economy on course. | Elsewhere the Fed is still facing a tough balancing act to keep the economy on course. |
In an effort to control spiralling inflation - and bring about a gradual soft landing for the economy - it raised rates for a record-setting 17th time in a row to 5.25% in June last year. | In an effort to control spiralling inflation - and bring about a gradual soft landing for the economy - it raised rates for a record-setting 17th time in a row to 5.25% in June last year. |
But oil prices - one of the main drivers of inflation - have remained stubbornly high at over $70 a barrel, leading to high energy costs which have prevented the Fed from cutting rates. | But oil prices - one of the main drivers of inflation - have remained stubbornly high at over $70 a barrel, leading to high energy costs which have prevented the Fed from cutting rates. |
Elsewhere, it is still unclear whether the recent growth spurt experienced by the economy is sustainable in the face of the current housing market slowdown. | Elsewhere, it is still unclear whether the recent growth spurt experienced by the economy is sustainable in the face of the current housing market slowdown. |
While growth rebounded to 3.4% between April and June from 0.6% in the previous quarter, jobs growth has slowed more than expected with just 92,000 jobs created in July. | While growth rebounded to 3.4% between April and June from 0.6% in the previous quarter, jobs growth has slowed more than expected with just 92,000 jobs created in July. |
Fed boss Ben Bernanke has maintained his stance that the economy is on track for a modest recovery. | Fed boss Ben Bernanke has maintained his stance that the economy is on track for a modest recovery. |
But economists believe the chances of a rate cut is now significantly greater than a rise but they remain split on whether a cut will take place this year or next. | But economists believe the chances of a rate cut is now significantly greater than a rise but they remain split on whether a cut will take place this year or next. |
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