Wednesday, December 13, 2006

US interest rates on hold again

US interest rates on hold again
US interest rates have been kept on hold at 5.25% for the fourth time running amid widespread signs of a slowdown in the economy.

As expected, the Federal Reserve opted to take no action on monetary policy although it said it remained mindful of inflation concerns.

A sharp slowdown in manufacturing and the housing market has led some experts to forecast a rate cut next year.

Worries over economic prospects have hit the dollar in recent months.

'Mixed signals'

The currency fell to a 14-month low against sterling earlier this month amid mounting evidence that the US economy could slow significantly next year.

Manufacturing activity is weaker than it has been for more than three years, according to recent surveys, while the once-buoyant housing market has cooled markedly.

Rates have been frozen since August following 18 months of successive rises.

In a statement, the Fed's rate-setting committee said that while inflation risks remained it expected these to lessen next year.

"Economic growth has slowed over the course of the year, partly reflecting a substantial cooling of the housing market," it noted.

"Although recent indicators have been mixed, the economy seems likely to expand at a moderate pace on balance over coming quarters."

Watching retailers

The economy grew 2.2% in the past three months, a performance that was better than originally estimated.

This encouraged experts who have been looking to policymakers to ensure the slowdown in activity does not turn into a prolonged downturn.

Forecasts for retail spending in the run-up to Christmas, the most crucial time of the year for retailers, are mixed.

Consumer spending rose last month but Wal-Mart, the largest US store chain, suffered a fall in like-for-like sales.

Story from BBC NEWS: