Central bank stands pat on interest rates as ....

June 26, 2008

26 June 2008

Central bank stands pat on interest rates as risks of damage to growth take a downward turn

The following article is excerpted from the 26 June 2008 edition of the “Toronto Star”.

The United States Federal Reserve is leaving a key interest rate unchanged for fear of inflation.

The federal funds rate, or the interest rate that banks charge each other, stays at 2 per cent, the central bank announced yesterday. It was the first time in 10 months that the Fed failed to reduce interest rates at one of the organization's regular meetings.

Fed chair Ben Bernanke and his colleagues cited threats to growth and rising inflation pressures as problems now confronting the economy. The central bankers said the downside risks to growth "appear to have diminished somewhat," but "the upside risks to inflation and inflation expectations have increased.'

Economists said they believed Fed policy makers were seeking to assure markets that they are watching inflation carefully but do not feel an immediate need to start raising rates….

While acknowledging that the upside risks to inflation have increased, the central bank repeated its forecast that inflation will moderate later this year and next year.

The opposing forces of weak growth and recession put the central bank in a bind. The Fed's main policy tool – changes in interest rates – can address only one of those problems at a time. Cutting interest rates tends to spur consumer and business spending and economic growth….


Topic(s): 
World Economy & Politics
Information Source: 
Canadian News Channel / International News Channel
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