MercoPress. South Atlantic News Agency

US Federal Reserve leaves interest rate unchanged at 2%

In a move which did not surprise, the US Federal Reserve on Wednesday kept interest rates unchanged at 2%. In its usual release following the two day meeting the Open Market Committee said that “recent information indicates that overall economic activity continues to expand, partly reflecting some firming in household spending”.

However, labor markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction, and the rise in energy prices are "likely to weigh on economic growth over the next few quarters". Analyst point out that the Federal Reserve faces a difficult balancing act as it tries to cope with a slowing economy and rising prices. US consumer confidence is reportedly at its lowest level in 16 years and a recent survey showed that house prices were substantially lower in April than a year ago. The release says that the FOMC expects inflation to moderate later this year and next year, "however in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflation expectations, uncertainty about the inflation outlook remains high". Regarding growth "the substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time", but "downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased". The Committee will therefore continue to monitor economic and financial developments and will act as needed to promote sustainable economic growth and price stability. The latest decision was approved by a 9-1 vote with Richard Fisher, president of the Fed's regional bank in Dallas, calling for a rise in interest rates now to fight inflation. The next FOMC meeting is scheduled for August 5th.