US bank hints at future rates rise


The decision to keep the US base interest rates on hold this month was a "close call", according to minutes of the latest federal reserve meeting released yesterday.

While just one member of the central bank's policymaking team opposed the move and called for a rates rise, officials agreed that a further tightening on the cost of borrowing might be necessary.

The disclosure of the views expressed by policymakers at the August 8th meeting has prompted speculation that the bank may again move to increase interest rates after holding them at 5.25 per cent this month following 17 consecutive hikes in the cost of borrowing.

Jeffrey Lacker was the only member of the central bank to vote in favour of an 18th consecutive increase, arguing that a further rate rise was necessary to curb inflation.

But while federal reserve officials said that they were concerned about higher inflation readings, they concluded that core inflation was likely to drop over the remainder of 2006 and 2007 as a result of rising energy prices, past interest rate increases and a slow-down in the US housing market.

Policymakers decided that keeping rates on hold would allow them to gather additional data about the performance of the economy before deciding on any future rate rises.

"The full effect of previous increases in interest rates on activity and prices probably had not yet been felt, and a pause was viewed as appropriate to limit the risks of tightening too much," the minutes said.

However, policymakers stressed that they had not ruled out the possibility of further increases if price pressures continued.

"In view of the elevated readings on costs and prices, many members thought that the decision to keep policy unchanged at this meeting was a close call and noted that additional firming could well be needed," the minutes added.

Speculation about further possible interest rate increases in the US comes as central banks across the globe move to raise the cost of borrowing in the wake of rising inflation.

The Bank of England raised the UK's benchmark interest rate by a quarter point to 4.75 per cent last month, while the European central bank also increased the rate of borrowing across the eurozone.

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