The US Federal Reserve left interest rates unchanged Tuesday as it battles with the duelling concerns of inflation and sluggish growth in the United States, dpa reported.
The US central bank kept its benchmark federal funds rate at 2 per cent for the second straight meeting, warning that an ongoing credit crisis could further impact growth while high energy costs continued to spur inflation.
"Although downside risks to growth remain, the upside risks of inflation are also of significant concern," the Federal Open Market Committee said in a statement.
The 9-1 decision - one of the board's members preferred a rise in the benchmark rate - had been expected by economists. The freeze comes after a drastic series of rate cuts by a total of 3.25 percentage points over seven meetings from September to April.
The board said its already heavy easing of monetary policy would help boost growth in the world's largest economy. Inflation was expected to moderate later in the year and into 2009, but that forecast was "highly uncertain."
US stocks improved on the Fed's announcement, trading more than 2 per cent higher Tuesday afternoon on Wall Street.
Gross domestic product increased by 1.9 per cent in the second quarter of 2008, up from 0.9 per cent in the first quarter and a 0.2- per-cent contraction in the last three months of 2007, according to a preliminary government estimate released last week.
The Fed credited the improved growth figures to higher consumer spending and exports over the past few months. But it also warned that a still-slumping housing market, which has led banks to clamp down on credit access, would continue to put pressure on the economy "over the next few quarters."
But high inflation has prompted some calls for the central bank to consider raising interest rates again. Consumer prices jumped 5 per cent in June compared to the same month in 2007, the government reported last month, largely due to surging petrol and food prices.
The International Monetary Fund, while approving of the current hold on monetary policy, last week said the United States should consider sharply raising interest rates as the economy improves and the turmoil in financial markets begins to ease.
The European Central Bank and Bank of England, dealing with similar inflation and growth concerns, are also expected to leave rates on hold when they meet Thursday.