US Fed holds key interest rate at 5.25%

09 May 2007 19:43  [Source: ICIS news]

WASHINGTON (ICIS news)--The Federal Reserve Board said on Wednesday it will keep the key US federal funds interest rate at 5.25%, adding that the nation’s economy seems likely to continue to expand at a moderate pace over coming calendar quarters.

 

There had been market speculation that the Fed - the US central bank - might see a need for lower interest rates because of the protracted downturn in the US housing sector and the spreading impact of that decline on other segments of the economy.

 

Addressing that concern, the central bank’s rate-setting Federal Open Market Committee (FOMC) said in a statement: “Economic growth slowed in the first part of this year and the adjustment in the housing sector is ongoing. Nevertheless, the economy seems likely to expand at a moderate pace over coming quarters.”

 

The Fed seemed less concerned about the housing sector downturn than about the continuing risk of inflationary pressures.

“Core inflation remains somewhat elevated,” the committee statement said.  

“Although inflation pressures seem likely to moderate over time, the high level of resource utilisation has the potential to sustain those pressures,” the committee said, adding that its “predominant policy concern remains the risk that inflation will fail to moderate as expected”.

The Fed said that its future interest rate decisions will depend on the relative risks of inflation versus a possible worsening of US economic conditions.

The federal funds interest rate is the rate the Fed charges for overnight loans between banks. It influences interest rates that banks in turn charge for consumer loans such as home mortgages, car loans and credit card debt.

By: Joe Kamalick
+1 713 525 2653

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