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Report: US Fed likely to stay put on rates
4/5/2007 11:53

US Federal Reserve officials are likely to reiterate that inflation is their predominant concern when they meet next week, even though inflation recently edged lower, The Wall Street Journal reported yesterday.

Fed officials are scheduled to meet on May 9 and are likely to leave their target for short-term interest rates at 5.25 percent, said the report.

Officials at the central bank also still see risks to growth, especially from weakness in business investment and housing, but those risks do not appear to have grown in the past month, it said.

According to Fed officials, said the report, there are still potential obstacles to further declines in inflation, such as a rebound in energy prices, a drop in the dollar and, most important, the failure of unemployment to rise as expected.

The April employment report, due Friday, will show whether the long-expected weakening in U.S. job markets has begun.

The report said the Fed is wary of inflation for several reasons. First, with core inflation, which excludes volatile energy and food, at or above 2 percent for three years now, the central bank is inclined to see any move up from today's level as far more consequential than a move lower.

A second reason is that the Fed sees several risks that could send inflation higher. The leading concern is that even as the economy has slowed, unemployment has kept failing.

"With labor markets appearing to have tightened further, rather than easing as expected, the upside risks to inflation have gotten bigger," Federal Reserve Bank of San Francisco President Janet Yellen was quoted as saying.



Xinhua