US interest rates have been kept on hold at 5.25% for the fifth time running, amid signs of the US economy staying reasonably strong.
As expected, the Federal Reserve opted to take no action on monetary policy - but said some inflation risks remained. This may cause investors to worry that the next rate move would be up, rather than down, analysts said. The Fed also said there were „tentative signs of stabilization” in the struggling US housing market. The unanimous decision came as official data revealed the economy had grown faster than expected late in 2006. Increased consumer spending offset a housing market slowdown, Commerce department figures showed. The Fed had been expected to begin cutting interest rates later this year. However there is now economists have expressed concerns that the central bank may be inclined to continue raising rates, fearing that inflation pressures will remain. „Recent indicators have suggested somewhat firmer economic growth, and some tentative signs of stabilization have appeared in the housing market,” the Federal Reserve said. „Overall, the economy seems likely to expand at a moderate pace over coming quarters".
US GDP rose at an annual rate of 3.5% from October to December. It was the biggest quarterly increase since the start of 2006, and followed a 2% rise in the Q3. While consumer spending rose 4.4% in the Q4, the level of new home building declined 19% - the biggest slump in 15 years. The consumer spending figure is key, as this accounts for about 70% of the output of the US economy. For 2006 as a whole, the US economy grew 3.4%, ahead of 2005's 3.2% expansion. Meanwhile, the latest official US inflation data showed the closely watched personal consumption expenditures price index fell 0.8% during the quarter, the biggest quarterly decline in 52 years. This was helped by a big fall in petrol and other energy prices. The Fed's ultimate aim is to slow the US economy and lower inflation, without business activity falling off so much that a recession begins. (BBC NEWS)