US Fed leaves interest rates unchanged

The Fed's chairwoman Janet Yellen defended the central bank's position on Thursday, but indicated that a rate hike was still likely this year. Answering questions from journalists on a possible interest rate increase later this year, Yellen said "October, it remains a possibility." The Fed's officials will also meet in December this year.

The Fed said in a statement on Thursday said the near-zero benchmark interest rate in place since 2008 "remains appropriate" and that the monetary policy was meant to "support continued progress towards maximum employment and price stability."

"Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term," the Fed said in an apparent indication to the recent stock market crisis in China, adding that it was "monitoring developments abroad."

Hike not ruled out

However, the Fed said that a rise in the benchmark rate remained likely in the near future - saying that its policymaking committee expected that an increase would be appropriate "when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its two percent objective over the medium term." Many economists had expressed concern that the current low inflation rate could become deflation if interest rates rose.

Fed officials also pointed out that the rate hikes, once they began, would be extremely gradual. The US' central bank could also pause for months after its first hike to evaluate the situation.

Thursday's decision was deemed to show that the slowdown in China had affected the Fed's policymakers.

Some investors claimed that once the Fed raised interest rates, rates for mortgages for individuals and companies would rise and affect the economy. However, other experts had been contending that the US job market had recovered from recession and that it was time to start moving towards normal interest rates.

mg/msh (dpa, Reuters)