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30th of December 2010
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January 28, 2010    

Fed leaves interest rates unchanged

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by Kay Murchie

The Federal Reserve yesterday opted to keep US interest rates at the historically low level of between 0% and 0.25%, as widely expected.

Interest rates have been at the record low since December 2008. However, yesterday’s decision to hold the rate was not unanimous.

One committee member, Thomas Hoenig, said economic conditions had changed so a change could be made in the rate.

A statement from the Fed read: “Information received since the Federal Open Market Committee met in December suggests that economic activity has continued to strengthen and that the deterioration in the labour market is abating.”

However, it warned that high unemployment, and tight credit conditions could hinder spending - an area crucial to the recovery of the world’s largest economy.

Furthermore, recent figures have raised concerns that the US housing market recovery might be faltering - another area which is important to economic recovery in the US.

This week, the Commerce Department revealed a fall in sales of new homes in the US for the month of December - the second consecutive month that sales have fallen.

According to the Commerce Department, new single-family home sales dived by 7.6% to a seasonally adjusted annual rate of 342,000 units, down from a revised 370,000 in the previous month.

The news came as a disappointment to analysts who had expected an increase in December.

In addition, the National Association of Realtors revealed a sharp fall in sales of previously owned homes in the US for the month of December.

The industry body said sales fell 16.7% to an annual rate of 5.45 million units in December, down from 6.54 million the previous month. Analysts had expected a rate of 5.90 million units.

Finally, the International Monetary Fund (IMF) this week raised its forecast for the US, it expects the economy to grow 2.7% this year - a sharp increase from its previous estimate of 1.5%.

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