US Fed holds interest rates at record low

April 29th, 2010 Leave a comment Go to comments

The U.S. Federal Reserve decided to leave interest rates unchanged, saying the current recovery will not result in rampant inflation, the board announced Wednesday.

The central bank kept the target range for its federal funds at between zero per cent and one-quarter of one percentage point, a record low level for the benchmark rate.

The Federal Open Market Committee (FOMC) — the group that meets concerning interest rates — said the U.S. recovery is still in an early enough stage that increased industrial production will not translate into higher prices any time soon.

“With substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time” the FOMC said in a press release at the conclusion of two days of meetings.

No inflation concerns
Most central banks carefully watch the general price level in a country, holding to the theory that letting inflation build up unchallenged will result in higher-than-necessary interest rates down the road.

The Federal Reserve’s decision suggests that, unlike in Canada, the central bank is not entertaining imminent increases in national interest rates.

“The unchanged tone in the forward-looking statements means that the Fed is unlikely to initiate a rate hike in the near term,” said RBC Economics assistant chief economist Dawn Desjardins.

Central banks in countries with strong economies usually express the most concern about inflation.

But the U.S. economy is expected to grow just as fast as Canada’s in 2010 — 3.3 per cent versus Canada’s 3.4 per cent according to the Bank of Montreal — even as the American central bank shows less concern about rising prices.

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