By DPA,
Washington : The US Federal Reserve kept interest rates unchanged Tuesday, citing both growth and inflation risks to the US economy amid an ongoing financial crisis in the country.
In its first unanimous decision this year, the US central bank’s federal funds rate was left at two percent, despite some expectation that the week’s financial turmoil might lead to a cut in the benchmark rate.
Wall Street stocks Monday posted their worst losses since the September 2001 terrorist attacks but had recovered slightly Tuesday afternoon.
The Federal Open Market Committee acknowledged that “strains in financial markets have increased significantly” and cited credit conditions and the ongoing housing crisis as continuing drags on the world’s largest economy.
Financial markets have been in disarray since the beginning of the week, after Lehman Brothers Holdings Inc declared the largest bankruptcy in US history.
The largest US insurer, American International Group Inc, was in search of a $75-billion-loan Tuesday – either from the Fed or private stakeholders – in order to stave off bankruptcy.
But the Fed also warned that inflation remained of “significant concern.” While prices were expected to level out later this year, the “outlook remains highly uncertain,” the committee said in a statement.
The government earlier Tuesday reported consumer prices dropped 0.1 percent from July to August on a seasonally adjusted basis, the first monthly drop in two years.
The consumer price index rose 5.4 percent year-on-year in August, down from a 5.6-per-cent inflation rate in July.
The Fed said it would continue to monitor economic growth and left the door open for more emergency lending to boost liquidity in the financial sector.
“Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth,” the committee said.
The central bank has injected $120 billion of reserves into the banking sector over the past two days, and Sunday widened the type of securities it will accept as collateral for the emergency loans.
Banks have reported more than $500 billion of mortgage- related assets, which are at the centre of the current financial crisis.