MercoPress. South Atlantic News Agency

US interest rates unchanged, but inflation fears persist

Following two years of steady increases and in spite of expressing concerns about increasing prices and wages, the United States Federal Reserve decided Tuesday to leave interest rates unchanged at 5.25%.

"Readings on core inflation have been elevated in recent months, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures", said the Fed in its release.

However, "inflation pressures seem likely to moderate over time, reflecting contained inflation expectations and the cumulative effects of monetary policy actions and other factors restraining aggregate demand".

The news brings relief to millions of consumers and businesses and comes after seventeen consecutive rate increases which began in June 2004 when they reached a historic low of 1%. The Fed started to increase rates because it wanted to put the brakes on a US economy that was showing signs of overheating, but recently there have been concerns that the US Central bank may has been too effective actually slowing the economy beyond target.

"Economic growth has moderated from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices", indicates the Fed release.

Nonetheless, the Fed Open Market Committee judges that "some inflation risks remain" and "the extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information".

The latest economic indicators point to a moderation in economic growth and a cooling of the housing market but prices and salaries continue upwards so analysts believe the Fed's pause could be temporary. US economy growth dropped from 5.6% in the first quarter to 2.5% in the second quarter. However, prices jumped from an annualized 2% to 4.1% between the first and second quarters.

Voting for the FOMC monetary policy action were: Chairman Ben S. Bernanke; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack Guynn; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker from Richmond Fed.

Following the announcement the US dollar in money markets slipped against other leading currencies.