Fed holds firm by fixing rates for six weeks

The United States Federal Reserve last night reaffirmed its determination to underpin recovery in the world's largest economy with rock-bottom interest rates when it left borrowing costs unchanged, at 1%.

Announcing its decision to fix rates at their lowest level since 1955 for a further six weeks, the Fed repeated its statement that low rates "can be maintained for a considerable period".

Despite growing signs that the US economy is back on the rails, the Fed said it still saw deflation, rather than inflation, as the "predominant concern" in the coming months.

Investors hoping for an acknowledgment of the healthier economic climate were disappointed, as the Fed's statement exactly replicated September's wait and see message, except for noting that "the labour market appears to be stabilising", reflecting the fact that September saw an upturn in employment for the first time in seven months.

Last night's decision came after news of a jump in household confidence and strong sales of durable goods boosted hopes that the nascent recovery will be sustained.

"With the holiday season around the corner, this improvement in consumers' spirits is a good omen for upcoming retail sales," said Lynn Franco, at the Conference Board's Consumer Research Centre, reporting that its closely watched confidence index ticked up to 81.1, from 77 in September. A separate report from the department of commerce showed orders for durable goods, such as washing machines and fridges, were up 0.8% in September.

While the Fed holds down rates to keep recovery on the boil and to stave off deflation, borrowing costs in Britain are widely expected to rise next week at the November meeting of the Bank of England's monetary policy committee.

Steve Nickell, one of the four independent members of the nine-strong MPC, told the Glasgow Herald yesterday that rates should be raised gradually to avoid puncturing consumer confidence. "My feeling is that we take one step at a time, and that if we take things slowly, we won't get some sort of sudden loss of confidence," he said.