Fed holds rates at 2%

18 September 2008

The US Federal Reserve decided yesterday to hold rates for another month.

Inflation concerns were cited by the bank as a crucial factor behind its refusal to impose a reduction, despite the recent market turmoil and the continuing downturn in the housing sector.

The scope for the Fed to impose further rate cuts is also fairly limited, with the bank rate currently at two per cent.

Overall, it has reduced the rate by over three per cent since the onset of the credit crunch.

"The downside risks to growth and the upside risks to inflation are both of significant concern to the committee," the Fed said in a statement.

However, the bank also acknowledged the recent steep drops on the stock market, which have been triggered by Lehman Brothers' bankruptcy declaration, Merrill Lynch's merger with the Bank of America and worries over the future of insurer AIG.

"Strains in financial markets have increased significantly," the statement added.

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