The US Federal Reserve has left interest rates unchanged at four-decade lows, biding its time as it awaits signs that a full-throttle recovery is in place.
The Fed's policy-setting Federal Open Market Committee (FOMC) announced at the close of a two-day meeting that it voted unanimously to maintain its trendsetting federal funds rate target at 1.75 per cent.
The more symbolic discount rate, charged to banks for loans directly from the Fed, was also unmoved at 1.25 per cent.
In its statement, the Fed acknowledged the economy had softened after an inventory-led bounce in the first quarter.
But it expressed cautious optimism about quarters to come.
"The committee expects the rate of increase of final demand to pick up over coming quarters, supported in part by robust underlying growth in productivity, but the degree of the strengthening remains uncertain," the statement said.
The Fed said risks were equally balanced between economic weakness and a flare-up in inflation, a stance unchanged from the last meeting on May 7th, but economists said the post-meeting statement's overall tone indicated no rate increases were likely in the imminent future.
However, it did repeat its description of current monetary policy as "accommodative",meaning there is a lot of stimulus in the pipeline after 11 interest rate cuts last year.
Stocks deepened earlier losses after the decision, then clawed back some ground. "There is a hint that they do not see any reason to tighten in the near term," said Mr Alan Ruskin, research director at 4Cast Ltd in New York.
"There seemed to be a little bit more discussion about the data and the underlying improvements in the economy, a little more sense that the world isn't as dire as some people would imply," said Mr Steve Ricchiuto, chief US economist at ABN Amro in New York.
Interest rates have stood at this level since last December and most economists believe the central bank will not raise borrowing costs until near year-end. The widely expected decision came amid growing market unease and with the economy still edging ahead unevenly.
Recent data have shown the economy in a gradual recovery - growing once more after a brief recession last year but at an uneven pace that analysts say has delayed the Fed's anticipated timetable to begin raising rates.
The Fed cut rates 11 times last year by a total of 4.75 percentage points to revitalise the flagging economy.
A general sense of queasiness in financial markets, prompted by a seemingly unending series of accounting scandals, concern over corporate profits and a weakening dollar, has cast a shadow across a generally favourable second-half economic outlook and could unsettle consumers.
The latest shock came on Tuesday with news that telecommunications giant WorldCom would restate its results for 2001 and the first quarter of 2002 to show losses.
Analysts said this could turn out to be one of the biggest accounting scandals in US history - a fresh blow to investor faith in the integrity of the world's most liquid markets and a development that could push rate rises even further out.
Still, the government reported yesterday that sales of new homes hit a record seasonally adjusted annual rate of 1.028 million units in May while orders for costly manufactured durable goods were solidly higher last month. The reports implied consumers, who fuel two-thirds of national economic activity, remained chipper enough to keep buying big-ticket items and to lend their purchasing power to the recovery.
The pick-up in durables orders indicated the factory sector, which bore the brunt of last year's slowdown, might be getting its feet under it once more.- (Reuters)
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