The Federal Reserve yesterday left short-term US interest rates unchanged but warned that a risk of inflation still weighed on the national economy. The Fed's policy-making Open Market Committee, in a statement issued after a regularly scheduled meeting here, cited high employment levels and steeper energy costs as factors that could increase inflation expectations.

But for now, steady gains in worker productivity and a slowdown in demand have helped contain inflationary pressures, the Fed concluded. The decision on monetary policy means the benchmark federal funds rate will remain at 6.5 per cent. The rate is a target used by commercial banks making overnight loans among themselves.