Fed keeps US cost of borrowing unchanged

The US Federal Reserve’s policy-makers did not deliver any surprises at the end of their one-day meeting. As expected by economists they kept benchmark interest rates unchanged. Fed chairman Ben Bernanke and his colleagues are still waiting for conclusive evidence that inflation is receding as they closely monitor economic weakness in the US.

The US rate remains at 5.25, the Bank of England is likely to raise the UK rate to 5.5% this week, but the European Central Bank is not expected to change the cost of borrowing in the euro zone. The financial data in the US is mixed. The economy grew at a tepid 1.3% annual rate in the first quarter, but consumer sentiment remains high, factory activity has begun to revive and business spending may be picking up.

The markets are hoping that the Fed can create the right circumstances for a gradual US economic slowdown, with neither a recession nor overheated growth. Investors are betting that the US central bank is going to lower interest rates at least once before the end of the year. However in the past they have underestimated the Fed’s inflation fighting obsession.

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