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Fed set to leave rates unchanged US interest rates left unchanged
(about 7 hours later)
US interest rates are widely expected to remain on hold, despite mounting fears about the state of the economy. US interest rates have been kept on hold, despite mounting fears about the state of the economy.
While analysts predict the US Federal Reserve is will leave rates at 5.25% for a 13th month, they also believe the bank will note recent market worries. 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.
The comments made by the central bank - which will accompany its rate announcement at 1815 GMT - will be closely watched by the markets.
"We expect the Fed to keep rates on hold at 5.25% and reiterate its anti-inflation bias, but also acknowledge recent volatility in financial markets," Lehman Brothers' analysts said in a briefing note.
Lending worriesLending 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.
However analysts are split over whether the Fed will directly address the current credit crunch.
While some believe the Fed will say it is prepared to step in to supply extra cash to the banking system should problems become serious enough, other experts believe such a message could see the market take fright once more.
"It might make investors nervous if all of a sudden the Fed is elevating the importance of what is going on in financial markets," said Mark Zandi, chief economist at Moody's Economy.com.
Wider concernsWider 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.