Fed leaves funds rate unchanged at 2 percent by Michaela Vargova

WASHINGTON - The Federal Reserve has decided to leave funds and interest rates unchanged. U.S. financial markets has expected and invited the Fed decision with delight. To millions of consumers and business loans such a solution means that the benchmark of commercial banks' basic lending rate will retain at 5 percent level (which is, however, the lowest commercial banks' prime lending rate level since 2004). Also the central bank believes the particular proceedings, that should be able to pump additional money to financial institutions, would finally help to promote and stabilize an economic growth. Analytics expect a moderation of an inflation rate later this year and next year, but also they still remain alert.
The Federal is in present time confronted with the threats of a slumping economy, rising inflation (triggered by this year's great elevation of energy prices) and with raising rates of unemployment (reaching 5.7 percent in July). Such a situation would many economists name as an economic recession. They also believe the Federal Reserve will leave the funds rate unchanged for the rest of the year. Good news about the inflation rate development reached the Federal on Tuesday this week. Oil prices dropped at the cheapest niveau they've been since May this year. If the decline in crude will be retained, it is expected it will help to take pressure off inflation without urging the central bank to begin raising rates. But still, there remains a peril the central bank takes the risk of losing its inflation-fighting reliability in case it delays solving surging inflation problems. However, a great surge in gasoline and food costs rose the consumer prices by 5 percent over the past year, which is, by the way, considered to be the largest increase since 1991.

by Michaela Vargova for PocketNews (http://pocketnews.tv)

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