Low inflation worries US Federal Reserve

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The Independent Online

The Federal Reserve said it was concerned that inflation rates are unhealthily low in the US, and it could act again soon to boost prices and economic activity.

In its hotly anticipated statement, after the latest meeting of its Federal Open Market Committee, the central bank opened the door to more intervention in the financial markets before the year's end, cheering stock markets.

One day after economists declared that the US recession was officially over, the Fed maintained it was concerned about stubbornly high unemployment and the sluggish recovery.

Official interest rates are being held near zero by the Fed, and it has been extending the duration of its $1.75 trillion programme of "quantitative easing", whereby it has printed new money to buy government and mortgage-related debt in order to push market interest rates lower too.

But yesterday it suggested it will go further after a summer of weakening data that had raised concerns that price deflation could take hold and send the economy into a double-dip.

"Measures of underlying inflation are currently at levels somewhat below those the committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability," the FOMC said. "[The Fed] is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate."

Earlier, the Commerce department said builders began work on new homes at an annualised rate of 598,000 units in August, up 10.5 per cent to the highest level since last November. Christoph Balz, at Commerzbank, said the market was recovering, after having dropped away when government subsidies for new homebuyers ran out in the spring. But with foreclosures looming he cautioned against "euphoria" over the data.