Fed holds rates

6 August 2008

The US Federal Reserve decided to hold rates at two per cent, it announced yesterday.

Shares in New York surged on the news that the central bank would not be increasing the base rate in order to check inflation - with the Dow Jones industrial average rising by 2.5 per cent.

Many analysts had speculated that a rate rise could be on the cards, following the release of consumer price data that pegged the annual inflation rate at an above-target five per cent.

In a statement, the Fed's Open Market Committee said: "Inflation has been high…although downside risks to growth remain, the upside risks to inflation are also of significant concern."

It added: "Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth."

The suggestion that the risks of a severe economic slowdown had "diminished somewhat" which was contained in last month's statement - a remark which led to speculation that rates would soon be tightened by the Fed in response - was also dropped.

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