Thursday, June 26, 2008

U.S. Interest Rate Held for First Time Since Start of Credit Crunch

The U.S. Federal Reserve ended its rate-cutting streak by freezing the federal funds rate target at 2%, a move that was widely anticipated by analysts.

The Federal Open Market Committee voted in favour of maintaining the benchmark rate as growth in household spending balanced out the overall weakness in the financial and labor markets.

The committee also warned that the continuing credit crunch, weakness in the housing market and soaring energy prices would likely push down U.S. economic growth over the next few quarters, although it said that downside risks appear to have diminished somewhat.

The committee expects inflation to moderate later this year and next year. However, in light of the continued increases in the prices of energy and some other commodities and the elevated state of some indicators of inflations expectations, uncertainty about the inflation outlook remains high.

The rate freeze was the Fed's first halt in cuts since September 2007, shortly after the credit crunch hit the markets. The federal funds rate target has been slashed by 3.25% in the past nine months.

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