US Fed holds rate at 2% despite financial crisis

16 September 2008 19:55  [Source: ICIS news]

WASHINGTON (ICIS news)--The US Federal Reserve Board voted on Tuesday to keep its key federal funds interest rate at 2%, indicating that rate is sufficiently low to promote moderate economic growth and noting that inflationary pressures are rising.

 

The Fed - the US central bank - noted that “strains in financial markets have increased significantly and labour markets have weakened further” and that “economic growth appears to have slowed recently, partly reflecting a softening of household spending”.

 

There had been speculation that the Fed might cut its interest rates a bit in order to ease credit availability amid a general tightening that follows from still more crises among major banks and investment houses.

 

In its statement, the Fed’s rate-setting federal open market committee (FOMC) recognized that “tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters”.

 

Nevertheless, the central bank indicated that further rate cuts to stimulate the economy are not warranted, and that the existing low rates should work the desired recovery effect eventually.

 

“Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth,” the committee said.

 

On the other hand, “Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities,” the bank said. While “The Committee expects inflation to moderate later this year and next year, the inflation outlook remains highly uncertain”.

 

The committee statement indicated, however, that the decision to hold the rate steady at its current 2% was a struggle of conflicting concerns.

 

“The downside risks to growth and the upside risks to inflation are both of significant concern to the committee,” the statement said.

 

The central bank said it “will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability”.

 

That statement was seen by analysts as a suggestion that the Fed might take action before its next regularly scheduled rate meeting on 28-29 October.

 

To discuss issues facing the chemical industry go to ICIS connect

By: Joe Kamalick
+1 713 525 2653

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly