After steadily cutting interest rates for much of the past year, the
U.S. central bank has decided to keep them unchanged, while signaling
concerns about inflation that could trigger interest rate hikes in the
future. VOA's Michael Bowman reports from Washington, where Federal
Reserve policy makers concluded a two-day meeting Wednesday.
The
Federal Reserve typically raises interest rates during periods of brisk
economic activity that tend to boost inflationary pressures, and
usually cuts interest rates when the economy falters and inflationary
risks are low.
But the U.S. economy remains weak and American
consumer confidence continues to plunge, while inflationary pressures,
led by rising energy costs, have been growing.
Further
interest rate cuts could heighten the risk of inflation, yet raising
interest rates could send a weak economy into a full-blown recession.
If
each option poses undesirable risks, perhaps the best course of action
is to maintain the status quo. That appears to be the Fed's thinking,
at least for now, as it chose to keep interest rates unchanged.
In
a statement, the central bank said recent interest rate cuts should set
the stage for a return to moderate economic growth, although it could
not discount the possibility of a recession, saying that "downside
risks" to growth remain. At the same time, the Fed said, in light of
price increases for energy and other commodities, uncertainty about the
inflation outlook remains high.
Given that uncertainty, many
economists say the Federal Reserve will continue to face tough
decisions in the months ahead.
"The
Fed is facing probably one of the most difficult circumstances that is
has faced in three decades," said Julia Coronado, a senior economist
with the New York-based investment firm, Barclays Capital. "We are seeing some
pretty pervasive inflationary pressures. They [Fed policy makers]
learned in the '70s that you cannot successfully accommodate an energy
price shock with lower [interest] rates. That, ultimately, it does fan
the flames of inflation."
In the 1970s, the United States faced
similar circumstances of slow growth amid rising prices - what
economists refer to as "stagflation." The U.S. economy returned to
robust growth with low inflation in the 1980s, but only after the
Federal Reserve dramatically raised interest rates and America suffered
a deep recession.
After steadily cutting interest rates for much of the past year, the
U.S. central bank has decided to keep them unchanged, while signaling
concerns about inflation that could trigger interest rate hikes in the
future. VOA's Michael Bowman reports from Washington, where Federal
Reserve policy makers concluded a two-day meeting Wednesday.
The
Federal Reserve typically raises interest rates during periods of brisk
economic activity that tend to boost inflationary pressures, and
usually cuts interest rates when the economy falters and inflationary
risks are low.
But the U.S. economy remains weak and American
consumer confidence continues to plunge, while inflationary pressures,
led by rising energy costs, have been growing.
Further
interest rate cuts could heighten the risk of inflation, yet raising
interest rates could send a weak economy into a full-blown recession.
If
each option poses undesireable risks, perhaps the best course of action
is to maintain the status quo. That appears to be the Fed's thinking,
at least for now, as it chose to keep interest rates unchanged.
In
a statement, the central bank said recent interest rate cuts should set
the stage for a return to moderate economic growth, although it could
not discount the possibility of a recession, saying that "downside
risks" to growth remain. At the same time, the Fed said, in light of
price increases for energy and other commodities, uncertainty about the
inflation outlook remains high.
Given that uncertainty, many
economists say the Federal Reserve will continue to face tough
decisions in the months ahead.
"The
Fed is facing probably one of the most difficult circumstances that is
has faced in three decades," said economist Julia Coronado. "We are seeing some
pretty pervasive inflationary pressures. They [Fed policy makers]
learned in the '70s that you cannot successfully accommodate an energy
price shock with lower [interest] rates. That, ultimately, it does fan
the flames of inflation."
In the 1970s, the United States faced
similar circumstances of slow growth amid rising prices - what
economists refer to as "stagflation." The U.S. economy returned to
robust growth with low inflation in the 1980s, but only after the
Federal Reserve dramatically raised interest rates and America suffered
a deep recession.
News
US Central Bank Leaves Interest Rates Unchanged
update