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Fed leaves rates unchanged; “inflation likely to moderate”

Wednesday, January 31st 2007 - 20:00 UTC
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The United States Federal Reserve left Wednesday interest rates unchanged at 5.25% for the fifth time running based on “firmer economic growth” with the economy “likely to expand at a moderate pace over coming quarters”.

The unanimous decision did not surprise markets and came as official data revealed that the US economy had grown faster (3.4%) than forecasted in 2006 and ahead of the 3.2% of 2005. The US GDP expanded at an annual 3.5% in the last quarter, the biggest quarterly increase in 2006 and followed a 2% rise in the third quarter. In its release the Federal Open Market Committee states that "some tentative signs of stabilization have appeared in the housing market". Although consumer spending in the fourth quarter expanded 4.4%, new house building plummeted 19%, the highest in 15 years. "Overall, the economy seems likely to expand at a moderate pace over coming quarters" anticipates the Fed. Nevertheless the FOMC judges that some inflation risks remain. "Readings on core inflation have improved modestly in recent months, and inflation pressures seem likely to moderate over time. However, the high level of resource utilization has the potential to sustain inflation pressures". But "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", adds the release. The latest US official inflation data shows that the personal consumption expenditures price index fell 0.8% during the fourth quarter, helped by a big fall in energy prices. Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Cathy E. Minehan; Frederic S. Mishkin; Michael H. Moskow; William Poole; and Kevin M. Warsh.

Categories: Economy, International.

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