US rates left on hold amid uncertainties

The US Federal Reserve left key American borrowing rates unchanged last night but said it was still watching closely for signs of rising inflation.

Amid continuing uncertainty over the outcome of the presidential election, the federal open market committee (FOMC) left the base interest rate at 6.5%, where it has been since mid-May.

Recent data suggesting a cooling of the mighty US economy had led some analysts to predict that the committee would downgrade the possible risks of inflation.

But in its statement, the FOMC warned that record lows in unemployment and sky-high oil prices still posed a threat to prices.

"The utilisation of the pool of available workers remains at an unusually high level, and the increase in energy prices, though having limited effect on core measures of prices to date, still harbours the possibility of raising inflation expectations," the FOMC said.

The hawkish tone of the comments unnerved investors, causing US stock markets to give up much of the ground made before the announcement. The Dow Jones industrial average and the Nasdaq composite index, both up 100 points before the decision, instantly shed most of their gains.

Investors had hoped for a more positive outlook on inflation, given the signs of a slowdown and the sharp decline in the stock markets over the past few months.