MercoPress. South Atlantic News Agency

Fed keeps rates unchanged

The US Federal reserve decided this Tuesday to leave US interest rates unchanged at its lowest level in 41 years, but warned once again that the world's richest economy was at risk of further weakness particularly given “heightened political tensions”.

With growing uncertainties about the US economy and a "double dip" recession, plus prospects of war in Iraq, with direct impact on energy prices, the Federal Reserve Open Market Committee announced that federal funds for overnight loans between banks will remain at 1,75%.

"Over time the current accommodative stance of monetary policy coupled with still robust underlying growth in productivity, should be sufficient to foster an improving business climate", said the Fed release, adding "however, considerable uncertainty persists about the extent and timing of the expected pickup in production and employment, owing in part to the emergence of heightened geopolitical risks".

Even when the US economy grew at an annual rate of 1,1% in the second quarter, an improved performance is expected by analysts in the third quarter.

However two members of the Open Committee dissented asking for a further cut in interest rates arguing the US economy was not creating enough jobs. The position held by Dallas Fed president Robert Mc Teer and Fed Board Governor Edward Gramlich has been further reinforced by a recent economic activity report from a Conference Board research group indicating that consumer confidence during September has been dropping for the fourth month in a row.

The Conference Board report indicated that with weakness in financial markets all over the world, growing unemployment in the US, currently 5,7% and concern about the Middle East, consumer confidence declined to 93,3 points in September from 94,5 last August, the fourth month running.