The Federal Reserve last night brought the curtain down on the longest run of interest rate increases in its recent history, explaining that US inflation was moderating as growth slows.
The central bank's Federal Open Market Committee (FOMC) voted, with a lone dissenting voice, to keep the benchmark US cost of borrowing at 5.25%.
It marked the first time since June 2004 that the Fed has not raised the federal funds rate. The bank had brought the rate up from a 46-year low of 1%, which was put in place to guard against the threat of recession-induced deflation.
'Economic growth has moderated from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices,' the FOMC said.
At the same time, inflation readings had been 'elevated' in recent months, the panel said. 'However, inflation pressures seem likely to moderate over time, reflecting contained inflation expectations and the cumulative effects of monetary policy actions and other factors restraining aggregate demand,' it said.
'Nonetheless, the committee judges that some inflation risks remain,' added the FOMC, leaving itself some room to resume its campaign of rate hikes if needed in the months ahead.
'The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information,' the statement said.
The decision to suspend the run of 17 consecutive hikes was not unanimous. One of the 10 FOMC members - Richmond Federal Reserve chief Jeffrey Lacker - voted to increase the fed funds rate by 25 basis points.
Most economists had expected the new policy
