Fed Holds U.S. Interest Rates Steady

The Federal Reserve Aug. 8 held U.S. interest rates steady for the first time since June 2004 to keep the benchmark cost of borrowing at 5.25%. "The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4%," the U.S. central bank's policymaking panel said.

The FOMC said that economic growth had moderated, "partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices".

At the same time, inflation readings had been "elevated" in recent months, the panel said. "However, inflation pressures seem likely to moderate over time, reflecting contained inflation expectations and the cumulative effects of monetary policy actions and other factors restraining aggregate demand," it said.

"Nonetheless, the committee judges that some inflation risks remain," added the FOMC, leaving itself some room to resume its campaign of rate hikes if needed in the months ahead. "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 decision to call off the longest-running campaign of hikes in the Fed's recent history was not unanimous. One of the 10 FOMC members -- Richmond Federal Reserve chief Jeffrey Lacker -- voted to increase the fed funds rate by 25 basis points.

Copyright Agence France-Presse, 2006

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