US central bank holds interest rates to support 'maximum employment and price stability'

The US central bank has yet again opted to keep interest rates at rock bottom levels.

The Federal Reserve had been hinting at a rate hike for some time as unemployment fell and economic growth accelerated.

But the recent market turmoil on the back of signs of a slowdown in China, plus weaker economic data released earlier this week had put that decision on a knife-edge.

The Federal Reserve said today that the move would support "maximum employment and price stability".

Like in Britain, US interest rates have been near zero since the depths of the financial crisis in an effort to foster an economic recovery.

Unemployment there fell to 5.1% in August and the growth rate stood at 3.7% in the second quarter, but earlier in the week retail sales came in weaker than expected and plummeting oil prices have been keeping a lid on inflation.

In a statement, the Federal Reserve said: "To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate.

"In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation.

"This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

"The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term."

It continued: "The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.

"This policy, by keeping the Committee’s holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions."

The Fed’s decision will be closely watched by the Bank of England, which is also considering a rate rise in the near future.

It has long been said that should the US opt to bump up rates, Governor Mark Carney and the Bank’s Monetary Policy Committee would likely follow suit shortly after.

Financial Markets are not anticipating such a move until May 2016 and a mixed bag of UK economic data this week – including a return to zero inflation and poor retail sales – has done nothing to suggest the Bank will adjust the timetable.