US Federal holds rate at 2%, disappointing those wanting cut
17th Sep 08, 9:11am
The US Federal Reserve held its key federal funds rate at 2% at its regular rate setting committee meeting, disappointing many hoping for some relief to ease turmoil on stock, bond and foreign exchange markets. The Dow initially fell on the news, but rebounded to close 140 basis points higher on hopes the Federal Reserve might lend AIG the US$75 billion it needs to survive. Meanwhile the Fed also pumped an extra US$50 billion of cash into the financial system by lending to banks, on top of the regular US$25 billion it normally pumped in. This was designed to help liquefy a financial system grinding to a halt under the uncertainties after the collapse of Lehman and the possible collapse of AIG. Here is the full statement below from the US Federal Reserve, which included the details of the vote, which was unanimously in favour of unchanged rates for the first time in a while. Even Richard Fisher, who has been voting for rate hikes for months, agreed to keep rates on hold.
"The Federal Open Market Committee decided today to keep its target for the federal funds rate at 2 percent. Strains in financial markets have increased significantly and labor markets have weakened further. Economic growth appears to have slowed recently, partly reflecting a softening of household spending. Tight credit conditions, the ongoing housing contraction, and some slowing in export growth are likely to weigh on economic growth over the next few quarters. Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to moderate economic growth. Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities. The Committee expects inflation to moderate later this year and next year, but the inflation outlook remains highly uncertain. The downside risks to growth and the upside risks to inflation are both of significant concern to the Committee. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability. Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh. Ms. Cumming voted as the alternate for Timothy F. Geithner."