US bank holds rates

16-08-2006

The US federal reserve has announced that key interest rates will remain at 5.25 per cent, signalling an end to a period of 17 consecutive increases.

However, central bankers have warned that inflation risks still exist within the domestic economy, prompting US shares to tumble on Wall Street.

Economic growth in the US has been healthy since June 2004, when interest rates hit an all-time low of one per cent, but there have been fears that the economy is in danger of overheating.

In a statement the bank admitted that the US economy had "moderated from its quite strong pace earlier this year", owing to a "gradual cooling" in the domestic housing market and sustained rises in energy commodity prices.

Although the federal reserve is remaining cautious over inflationary risks, it insists that pressures will ease over the coming months, claiming that future hikes are dependent upon the "evolution of the outlook for both inflation and economic growth".

But the decision of Ben Bernanke, the bank's chairman, and the other policy members has met with a mixed reaction from investors, who believe that the interest rate slowdown is too sudden and ill-timed.

The holding of US interest rates comes at the same time as other world markets raise theirs. The Bank of England recently increased rates to 4.75 per cent, while the European central bank's rates went up to three per cent.


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