US rates steady as economy looks up

The US Federal Reserve has left interest rates unchanged at 1.75 per cent giving its most optimistic assessment of the outlook for the US economy in more than a year.

The Fed’s rate-setting committee, chaired by Alan Greenspan, said: “Signs that weakness in demand is abating and economic activity is beginning to firm have become more prevalent. With the forces restraining the economy starting to diminish, and with the long-term prospects for productivity growth remaining favorable and monetary policy accommodative, the outlook for economic recovery has become more promising.”

However, there were familiar tones of caution in its statement, saying conditions were still weighted towards weakness with a quick recovery from recession doubtful.

The Reserve Bank of Australia meets next Tuesday to consider interest rates and will almost certainly decide to keep rates unchanged.

With rates at already expansive and historically low levels, the impending upturn in the US economy combined with our own inflation fears have probably put paid to further rate cuts in Australia and brought closer a return to rising interest rates.