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Fed holds rate unchanged at 5.25%

The US Federal Reserve has left its main interest rate unchanged at 5.25%.

It was the sixth meeting in a row that the main borrowing cost was not altered and comes amid concerns about economic growth and a weaker mortgage market. However, the Federal Reserve changed the language of its statement, dropping the „tightening” bias, signaling that its inflation fears had subsided slightly. Analysts said that the change in tone could signal that the Fed was willing to cut rates later this year. „Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth,” the Federal Open Market Committee, the Fed's rate setting group, said. „Recent indicators have been mixed and the adjustment in the housing sector is ongoing,” it added. „Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters,” it concluded.

The last time the Fed raised rates was in June 2006, bringing to an end two-years of increasing borrowing costs as the US economy climbed out of a slowdown. The decision to leave rates unchanged at the latest meeting was widely expected after a number of factors combined to create uncertainty in financial markets. At the end of last month, stocks tumbled worldwide, prompted by a sell-off in China and fanned by worries about the strength of global economic growth and the outlook for corporate profits. At the same time, worries emerged about the state of the US sub-prime mortgage market, with analysts questioning whether some of the industry's biggest names would survive.

Sub-prime lenders provide mortgages to people with poor credit histories and the steady increase in US interest rates has pushed defaults to near record levels. While many analysts said that the tone of the Fed statement had changed, they also warned that it probably would not move to cut rates any time soon. „They have got to let the dust settle on this very mixed picture before they do anything,” said David Jones of DMJ Advisors, adding he did not expect the Fed to cut rates before September. (BBC NEWS)