Fed holds key rate at 3.50–3.75 per cent

Uncertainty is beginning to emerge at the Federal Reserve. While most officials still expect interest-rate cuts this year, one policymaker has, for the first time, signalled the possibility of a rate rise next year. Meanwhile, the Fed’s monetary policy committee left the key rate unchanged in a range of 3.50 per cent to 3.75 per cent.

The shift reflects growing concern about inflation, driven mainly by higher energy prices following the conflict involving Iran. New projections also suggest that central bankers have become more pessimistic about the inflation outlook than they were a few months ago.

Inflation expectations have moved further above the Fed’s target, which could complicate plans for monetary easing.

Although economic growth and unemployment remain relatively stable, the debate over the future path of interest rates is clearly beginning to shift.

(reuters, mja)