Wreckage from a massive crisis on Wall Street could prompt the Federal Reserve to do an about face and once again cut a key interest rate this week or possibly later this year, economists said Monday
The US central bank has left interest rates unchanged at 2%, citing inflation concerns and rejecting calls for a cut. While the Federal Reserve had been tipped to leave rates on hold, analysts said a cut looked more likely after Lehman Brothers filed for bankruptcy. The Fed has sought to soothe nerves and earlier injected $70bn (£39bn) into markets to boost liquidity.
Central banks worldwide have faced the twin threat of quickening inflation and a wider economic slowdown. "The downside risks to growth and the upside risks to inflation are both of significant concern to the committee," the bank's officials said. Michael Wallace, an analyst at Action Economics said: "The Fed's statement largely resisted market pressure for a more substantial capitulation."
He said the assessment was "defiantly set at neutral", in expressing worries about both slowing economic growth and inflation. The decision to leave rates at 2%, as it has been since April, was a unanimous move.
US shares were volatile with the leading Dow Jones Industrial Average down 106 points to 10,811 after the news.
However, it later ended more than 140 points higher at 11,059.02 as investors interpreted the Fed's decision as a sign that the economy was less fragile than some had feared.
