US rate chiefs foresaw revival hiccup

Economists in charge of US interest rates realised early last month that the US economic revival was losing steam, a report has revealed.

Members of the rate setting committee at the Federal Reserve, the US central bank, voted by 10-0 to keep rates on hold at their 5 May meeting, minutes of the session have revealed.

The decision to maintain rates at a 40-year low of 1.75% came amid mounting evidence that the recovery seen at the start of the year was losing momentum.

"The members weighed the possibility that the expansion could be relatively subdued for a time," the minutes said.

But the panel was optimistic over a return to stronger growth.

"A pause in the expansion was not an unusual development during the early stages of a cyclical recovery, and members generally viewed a pick-up in growth as a reasonable expectation," the minutes added.

Breathing space

A low rate of inflation left the committee with room to delay a rise in interest rates which economists had, at the beginning of the year, to kick in during the spring.

Inflationary pressures were "subdued and expected to remain so for a considerable period", giving space to "evaluate ongoing developments and tighten policy as needed later", the committee said.

But the committee viewed the weakening of the dollar - which has continued over the last month - and rising energy costs as threats to the inflation outlook.

"Members saw the need for careful monitoring of the potential for rising inflation pressures as the economic recovery gained momentum," the minutes said.

The publication comes a day after the Fed, at its latest monthly meeting, left rates at 1.75% for a seventh month.