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US Central Bank Keeps Short-Term Interest Rates at Same Level


As expected, the Federal Reserve, the U.S. central bank, Thursday held short-term interest rates steady at 5.25 percent, the rate it has been at for 12 months. VOA's Barry Wood reports that even though the U.S. economy is weak, rates are not being cut because inflationary pressure remains high.

The Federal Reserve reports modest progress in holding down inflation and says there are tentative signs that the economy is improving. But in a statement it says that it is not yet convinced that inflation is in check. In recent months, gasoline prices have risen to record highs as world oil prices resumed the uptrend that began three years ago. Energy and food have been the primary sources of upward pressure on overall prices.

The other big problem in the U.S. economy is weakness in housing as prices for homes have fallen somewhat in most parts of the country. A related issue is sub-prime mortgages, home loans made to individuals with poor credit ratings. Many sub-prime loans have gone bad, creating losses for home lenders and banks.

Speaking on CNBC television, Bill Gross, chief bond market strategist at Pimco in southern California, said he believes weakness in housing will prompt the central bank to cut rates later this year.

"We expect for the next six to 12 months for the U.S. economy to weaken further, not to enter a recession but to weaken further," he said. "And therefore, to have the Fed ultimately cut interest rates by 50 to 75 basis points."

That is one-half to three-quarters of one percent. The Central Bank cuts interest rates when it seeks to boost the economy.

Earlier Thursday, the U.S. government revised for the second and final time its report on economic growth in the first three months of the year. The gross domestic product expanded by seven-tenths of one percent, the slowest pace of growth in four years. The first revision registered only sixth-tenths of one percent growth.

The International Monetary Fund (IMF) last week said it expected the U.S. economy to rebound in the second half of the year, boosting growth for the year to two percent. The 27 European Union countries are now growing somewhat faster than the United States while Japan's growth is similarly about two percent.

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