The Federal Reserve’s policy-setting arm, the Federal Open Market Committee (FOMC), elected to keep interest rates on hold between 0% and 0.25% yesterday.
Rates have been at the record low since December 2008 and the Fed has announced it will hold rates at this historic low until 2013 – suggesting the central bank is concerned about the economic recovery.
However, the announcement sent stock markets higher.
Wall Street’s Dow Jones index had its best day in two years, while Asia and European markets rose; however, the gains were not enough to recover from the severe falls stock markets have seen in recent weeks.
Meanwhile, there have been fears for the US economy over recent weeks – in particular, many have suggested it could be falling into recession.
Following its policy meeting, the Fed said that US growth this year had been “considerably slower” than it had expected.
The world’s largest economy grew at an annual rate of just 0.8% in the first six months of the year, while consumer spending fell in June – the first fall in almost two years.
Consumer spending is closely monitored as it accounts for approximately 70% of total economic output.
Furthermore, the economy continues to struggle in the face of higher unemployment and a depressed housing market.