MercoPress. South Atlantic News Agency

Fed leaves rates at 5.25%; inflation risk predominant concern

Fearing inflation “will fail to moderate as expected”, the United States Federal Reserve, following two days meeting, left its main interest rate unchanged, for the eighth time running at 5.25

The Fed's rate-setting committee, FOMC, which includes Chairman Ben Bernanke, voted unanimously on Thursday to leave borrowing costs where they were. Contrary to earlier forecasts many analysts believe interest rates may now stay where they are for the rest of the year. There had been some speculation that a weakening housing market and slowing economic growth could prompt the Fed to cut interest rates. A report on Thursday showed that the US economy, the world's biggest, grew by 0.7% in the first three months of 2007, the slowest pace in four years and down from 2.5% in the last quarter of 2006. According to the FOMC release US economic growth appears to have been "moderate during the first half of this year, despite the ongoing adjustment in the housing sector. The economy seems likely to continue to expand at a moderate pace over coming quarters". "Readings on core inflation have improved modestly in recent months. However, a sustained moderation in inflation pressures has yet to be convincingly demonstrated. Moreover, the high level of resource utilization has the potential to sustain those pressures". FOMC concludes that "in these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information". The Fed is not alone in worrying about inflation, and central banks worldwide have been lifting borrowing costs. In the UK, the Bank of England has raised rates four times since August. The EU Central Bank in the last twelve months has pushed rates steadily up five times. The FOMC is scheduled to meet again August 7.