By Chris Cermak Jun 25, 2008, 22:37 GMT
Washington - The US Federal Reserve on Wednesday halted a string of dramatic interest rate cuts that had been meant to boost the sagging economy in the United States, keeping its benchmark rate steady at 2 per cent.
The US central bank had lowered its federal funds rate by 3.25 percentage points since September, but a statement Wednesday from the Fed's monetary-policy board sounded warnings about increasing risks of inflation.
'Although downside risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased,' the Federal Open Market Committee statement said.
The board's 9-1 vote was largely expected by economists, after the Fed had given increasing indications over the last few weeks that inflation was becoming a problem.
US stocks rose immediately on the Fed's announcement and slightly rosier growth expectations, but ended the day mostly flat.
The blue-chip Dow Jones Industrial Average was nearly unchanged, while the broader Standard & Poor's 500 was up 0.6 per cent. The technology-heavy Nasdaq Composite Index, which is often more volatile than the benchmark indices, gained 1.4 per cent.
Surging food and energy prices have been mostly to blame for inflation worries, but the Fed said that some broader indicators have also been in an 'elevated state.'
Inflation pressures were expected to ease later this year, but 'uncertainty about the inflation outlook remains high,' the Fed said.
Final US growth figures for the first quarter are set to be released Thursday. Previous estimates showed US gross domestic product expanded 0.6 per cent from January-March.
Some economists believe that the US may have entered a recession, as consumer confidence indicators have continued to drop and consumer spending has slowed.
Billionaire investor Warren Buffett on Wednesday warned that the US could be stuck in 'stagflation' - stagnant growth combined with rising prices - for the rest of the year, in an interview with Bloomberg Television.
The Fed said that its drastic rate cuts in previous months 'should help promote moderate growth over time' but acknowledged that there were still significant pressures on the overall economy.
Falling housing prices since early 2007 set off a string of events that have largely driven the economic downturn in the United States. Financial institutions have lost billions of dollars amid a record rate of home foreclosures in the last year, which has in turn prompted banks to tighten lending practices.
Rising petrol prices - sparked by higher global demand for oil - have also significantly impacted spending in the United States, while the country's unemployment rate climbed 0.5 points in May to 5.5 per cent.
'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,' the Fed said.
The Commerce Department earlier Wednesday said that the rate of home sales was down 40 per cent in May from a year earlier.
The S&P/Case-Shiller index, a privately issued measure of housing costs in the 20 largest US cities, earlier this week found that prices dropped 15.3 per cent in April from the same period a year before.
View blog reactions
If you liked this story please support M&C and Buzz the site on Yahoo.
There are currently no comments for this article. Be the first to comment! (no registration required)
Advertising
There are currently no comments for this article. Be the first to comment! (no registration required)