MercoPress. South Atlantic News Agency

Fed does not discard further interest rates hike

The Federal Reserve is not discarding further hikes of the basic interest rate in the months ahead because an important risk of inflation persists, according to minutes of the last meeting.

Last August 8 the Fed decided to hold rates at 5.25% breaking a two year cycle of (17) rate rises introduced to slow an overheated economy.

However minutes show that one member voted against the move.

Furthermore policymakers agreed that the change of pattern "did not necessarily mark the end of the tightening cycle".

Richmond Fed chief Jeffrey Lacker was the member voting against the August decision arguing that the continued tightening of borrowing costs was necessary to bring down inflation. Even when the decision to call off rate tightening was a close call, steady rates would allow the Fed to gather more data 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. Actually freezing rates brought relief to millions of consumers, business borrowers and home owners with mortgages.

However the Federal Reserve has not easy decisions ahead: raising interests helps tackle rising inflation but making money more expensive will slow or stifle economic growth.

Earlier this month the Fed said it was still worried about rising prices and wages. It warned that rates could go up again if inflation carried on rising or the economy started overheating. A sizeable body of opinion believes that a return to the cycle of tightening interest rates is likely but by the end of the year.

However, recently there have been concerns that the 17 consecutive rate increases have been too effective - slowing the economy too much or too quickly. But interest rates are rising across the world: the Bank of Japan has ended its strategy of zero-interest rates by upping them to 0.25%, while the Bank of England and European Central Bank both raised their benchmark rates last month.