Federal Open Market Committee (FOMC) of the US Federal
Reserve, which decides on key US interest rates, decided
to maintain its target federal funds rate at 5.25 per
cent at its meeting yesterday. The Fed was widely expected
to hold the rates and the stock markets have responded
positively. US treasuries were mostly unchanged as there
were no surprises in the Fed decision.
unexpected decline in producer price, or wholesale price,
inflation and evidence of further slowdown in the real
estate market in the US were enough to prompt the Fed
to wait further before deciding on the next policy move.
Fed continues to believe that the US economy is not headed
for a sharp drop in growth rates, as feared by some, and
the slowdown would be moderate and orderly. "The
moderation in economic growth appears to be continuing,
partly reflecting a cooling of the housing market",
the statement released by the Fed said.
Fed has taken note of the reduction in crude oil and other
commodity prices. "Inflation pressures seem likely
to moderate over time, reflecting reduced impetus from
energy prices, contained inflation expectations, and the
cumulative effects of monetary policy actions and other
factors restraining aggregate demand", the statement
it is not yet time to drop the guard on inflation as "the
high levels of resource utilisation and of the prices
of energy and other commodities have the potential to
sustain inflation pressures" and "the Committee
judges that some inflation risks remain".
Fed continues to keep its policy options open and the
statement repeats what the previous statement said on
future interest rate actions by the Fed. "The extent
and timing of any additional firming that may be needed
to address these risks will depend
on the evolution of the outlook for both inflation and
economic growth, as implied by incoming information",
the statement added.