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US leaves rates unchanged at 2% US leaves rates unchanged at 2%
(about 2 hours later)
The US central bank has opted to leave interest rates unchanged at 2%, rejecting calls for a cut. 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 likely after the recent collapse of Lehman Brothers. 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.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.Central banks worldwide have faced the twin threat of quickening inflation and a wider economic slowdown.
The US benchmark interest rate has been at 2% since April. "The downside risks to growth and the upside risks to inflation are both of significant concern to the committee," the bank's officials said.
US shares, which had risen slightly before the announcement, shed 106 points to 10,811 soon after news. The decision to leave rates at 2%, as it has been since April, was a unanimous decision.
Traders had hoped the central bank would cut rates in a bid to boost the economy. US shares remained volatile with the leading Dow Jones Industrial Average down 106 points to 10,811 after the news.
Investment firm Lehman Brothers filed for bankruptcy on Monday while the future of insurance giant AIG remains uncertain. However, it later climbed 120 points as investors interpreted the Fed's unanimous decision as a sign that the economy was less fragile than some feared.
Certain traders had hoped the central bank would cut rates in a bid to boost the economy.
Investment firm Lehman Brothers filed for bankruptcy on Monday, triggering market jitters, while the future of insurance giant AIG remains uncertain.
While the Federal Reserve kept interest rates unchanged, it noted that stresses on financial markets had grown sharply and added that it would take further action if needed.
The central bank said "strains in financial markets have increased significantly and labour markets have weakened further."