Recognising the US economy is now expanding "at a significant pace" while at the same time still cautious about the prospect of a sustained expansion, the US Federal Reserve yesterday decided to hedge its bets and keep interest rates unchanged.
The decision could mean a swing away from a prolonged period of rate-cutting in the global economy and towards a gradual end of crisis-level borrowing rates.
This was underlined by the decision of Sweden's Riksbank yesterday to tighten monetary policy, the first major central bank to do so since 2000.
The no-change announcement by the US Federal Reserve Open Market Committee in Washington confirms the end of a year-long campaign of almost monthly reductions aimed at ending the slump in the world's biggest economy.
"The information that has become available since the last meeting of the committee indicates that the economy, bolstered by a marked swing in inventory investment, is expanding at a significant pace," the Fed said.
"Nonetheless, the degree of the strengthening in final demand over coming quarters, an essential element in sustained economic expansion, is still uncertain.
"In these circumstances, although the stance of monetary policy is currently accommodative, the committee believes that, for the foreseeable future, against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are balanced with respect to the prospects for both goals," the Fed added.
The target rate for federal funds stands at 1.75 per cent, the lowest rate since the Kennedy era, and follows 11 cuts totalling 4.75 percentage points since January 2001. The tone and wording of the central bank statement was in marked contrast to recent announcements that emphasised continuing risks towards the downside, and was taken by analysts as a signal to the markets of an eventual rise in borrowing costs this year.
The Open Market Committee last met at the end of January leaving rates unchanged and repeating its warning that risks were tilted toward weakness, though the economic outlook had become more promising.
The decision to keep the historic low was made easier by the almost total absence of any signs of growing inflation .
The US Commerce Department yesterday reported a bigger than expected trade gap in January, indicating to the central bank a rise in demand for consumer goods like pharmaceuticals, electronics, clothing, computers accessories and industrial machines.
The US trade deficit for goods and services widened to $28.5 billion (€32.3 billion) in January from a revised $24.7 billion in December.
Industrial production has risen twice this year after a prolonged recession in manufacturing. It was up by 0.4 per cent in February for the second month in succession.
