Fed expected to keep rates steady

Stock markets are jittery ahead of the Fed's decision on rates

The US Federal Reserve is widely expected to keep interest rates at their current level of 5.25% at the end of its June meeting on Thursday.

As its rate-setting Open Market Committee sits down for two days of talks, many analysts predict that rates will remain unchanged.

More important will be the comments that accompany the Fed's decision which could help predict its next move.

Inflation concerns have fanned fears that rates could still move higher.

Marked shift

This is a marked shift from the consensus until recently that rates were likely to be cut by the end of the year.

The Fed for the next six to nine months will walk softly and carry a big stick Richard Yamarone, Argus Research

The change in expectation comes on fresh predictions of a rebound in economic growth, despite almost flat growth of 0.6% for the first three months of the year and the continued housing market weakness.

At the beginning of this month, Federal Reserve Chairman Ben Bernanke talked of inflation as being "somewhat elevated".

"The Fed for the next six to nine months will walk softly and carry a big stick," said Richard Yamarone, economist at Argus Research.

"You'll hear them talk up the detriments of higher inflation. But I seriously doubt they'll change policy, " he added.

Central banks around the world have been raising interest rates as fears of inflation have increased.

But economic growth this year in the US is expected to be slower than its main competitors in Europe and Asia.