The US Federal Reserve looks set to keep interest rates unchanged at its rate-setting meeting on Wednesday.
The decision will be made as fears for the economy from some quarters amid the threat of inflation and turbulence in the mortgage market. The Fed Reserve has kept its key rate at 5.25% for the past five meetings, ending a steady period of increases as the US economy pulled out of a slump. Analysts said that the Fed's comments would provide clues to future policy. „The Fed's upcoming statement will be important because, since their last statement, the economy has softened, while the inflation data has remained elevated,” said Peter Boockvar of Miller Tabak & Co. „We want to see how the Fed changes their statement, if at all.” Markets will be looking to see if the Fed makes any comment on the impact of the recent problems in the sub-prime mortgage market that has threatened to bankrupt some of the industry's biggest names.
Sub-prime lenders deal with customers who have poor credit records, and the higher interest rates have increased the amount of defaults, creating problems. The worry is that the - so far - limited impact of the sub-prime troubles could spread to the wider economy, prompting a slowdown in consumer spending and a slump in the housing market. Consumers are the biggest driver of the US economy, and much of the spending boom in recent years has been fuelled by mortgages and remortgaging, analysts said. Nicolas Beckmann of BNP Paribas in New York said people want to know if the Fed is „going to change their growth outlook because of this sub-prime business”. „Do they think there is a risk of contagion? How serious is this story? That's what we want to hear from the Fed.” (BBC NEWS)