The US Federal Reserve last night held US interest rates steady for a fourth straight meeting, renewing a warning on inflation but nodding to "mixed" economic signals and a "substantial" housing slowdown.
The widely expected decision by the central bank's Federal Open Market Committee keeps the overnight federal funds rate target at 5.25 per cent, the level it hit in June after 17 straight quarter-percentage point increases.
In announcing the decision, the Fed departed from its last statement in October by taking note of the scope of the housing downturn and cross-currents in recent data - subtle shifts financial markets took as hints the central bank's one-sided focus on inflation was softening.
Still, the Fed said "some inflation risks remain," as it once again held out the prospect that interest rates may need to move higher in coming months.
"Readings on core inflation have been elevated, and the high level of resource utilization has the potential to sustain inflation pressures," the statement said. "However, inflation pressures seem likely to moderate over time."
Prices for US government bonds rose and the dollar fell as traders saw the statement suggesting a somewhat greater likelihood of rate cuts next year. Stock prices briefly trimmed earlier losses but closed down.
US interest rate futures moved higher to imply a slightly greater chance of a rate cut in March, although a reduction is not fully priced in until the end of June.