US Federal Reserve holds interest rates

US interest rates held at near-zero levels despite relatively strong consumer spending and lower unemployment.

    Some economists worry raising rates will strengthen the dollar and hinder exports [Reuters]
    Some economists worry raising rates will strengthen the dollar and hinder exports [Reuters]

    The US Federal Reserve has decided to hold interest rates at their current near zero levels, despite rising consumer confidence and relatively low unemployment. 

    The central bank announced on Thursday that rates will stay the same for now after bringing them down to current levels after the Global Financial Crisis took hold in 2008.

    The decision came amid the lowest unemployment rate in seven years - 5.1 percent last month - and strong consumer spending.

    However inflation levels have remained stubbornly low because of a downturn in energy prices and the US having to deal with a slowing global economy. 

    "Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term," a statement by the Federal Reserve said.

    "To support continued progress towards maximum employment and price stability, the committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate."

    Global volatility

    Jacob Kirkegaard, an economist with the Peterson Institute for International Economics, told Al Jazeera that there was growing consensus among observers that the Federal Reserve would not move rates yet.

    "We have had a lot of volatility in global developments and the global economy.... We have the prospect in Congress of a lot of political fireworks in the coming weeks. We may risk having another shutdown of the federal government," Kirkegaard said.

    "When the interest rate increases do arrive eventually they'll be very gradual. Maybe a quarter of a percentage point, with a significant time lag in between."

    By keeping interest rates low, the Federal Reserve makes it easier for consumers to borrow money and so encourages increased spending.

    Rates in the US have not been raised since 2006, the year before a global economic slump began.

    SOURCE: Al Jazeera


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