国际英语新闻：Federal Reserve forced to hold key interest rate steady

WASHINGTON, Aug. 5 (Xinhua) -- The U.S. Federal Reserve was forced to hold a key interest rate steady at 2 percent on Tuesday for a second straight time due to pressures of a possible recession and rising inflation.

    "Inflation has been high, spurred by the earlier increases in the prices of energy and some other commodities, and some indicators of inflation expectations have been elevated," The Federal Open Market Committee, the Federal Reserve's decision-making body, said in a statement after the decision.

It said that the Fed expects inflation to moderate "later this year and next year," but noting "the inflation outlook remains highly uncertain."

    The Fed decision on Tuesday had been expected by Wall Street. Many economists believe the Fed would prefer to leave rates steady through the rest of this year and then begin to boost them next year.

Police officer Joseph Washington secures the area near the Federal Reserve Building in Washington June 25, 2008.

    "I think the Fed would rather wait until after the election before they consider raising rates," said David Jones, chief economist at DMJ Advisors.

    Federal Reserve Ben Bernanke has warned that the U.S. economy continues to face "numerous difficulties," include persistent strains in financial markets, declining house prices and rising prices of oil and food.

    "The U.S. economy and financial system have confronted some significant challenges thus far in 2008," said Bernanke in a written testimony to the Senate Banking Committee last month.

    "Although downside risks to growth remain, the upside risks to inflation are also of significant concern to the Committee," the Fed also said after deciding to hold a key interest rate steady on Tuesday.

    Since last summer, the Fed has knocked more than three percentage points off its target short-term lending rate, pushing it to 2 percent from 5.25 percent.

    However, the economic situation seemed to have become worse, which was also acknowledged by the Fed in the latest statement.

    "Economic activity expanded in the second quarter, partly reflecting growth in consumer spending and exports," said the statement.

    "Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters," it added.

    U.S. consumer spending expanded by 0.6 percent in June, but when adjusted for inflation, spending in June fell 0.2 percent.

    Meanwhile, personal income, the fuel for future spending, rose by 0.1 percent in June, smallest gain since the rate was reported unchanged in April 2007.

    Consumer spending accounts for two thirds of overall economic activity and is a major force pushing the economy to grow.

    Some analysts believe that spending could falter further in coming months as the economy is struggling through a persistent housing slump and a credit crunch.

    Moreover, unemployment rate rose to a four-year high of 5.7 percent in July as fears of a recession have grown. Employers cut their payrolls by 51,000 in July, the seventh straight month of nationwide job losses.

    The health of the job market is critical for the overall economy to grow. The big worry is that companies, affected by a severe housing slump and a credit crisis, might cut back on hiringfurther.

    The government also reported last week the overall economy grew at an annual rate of 1.9 percent in the second quarter of this year. But the GDP declined by an annual rate of 0.2 percent in the

    final quarter of last year, the worst showing since the third quarter of 2001, when the economy was last in a recession.

    Some economists believe the recession is inevitable and many others insisted that the world largest economy might have been in a recession.

    A recession is typically marked by two straight quarters of negative economic growth.

    "Energy price increases are forcing major adjustments in many industries," said Former St. Louis Fed President William Poole, noting that "the economy is limping along right now around Zero" growth.

    However, the Fed policymakers voiced optimism that relatively low interest rates would help foster renewed growth going forward.

    "Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth," said the Fed in Tuesday's statement.