Fed keeps rates on hold at 5.25%

Policymakers remain concerned about the state of the US economy

The US Federal Reserve has kept its main interest rate on hold at 5.25%, in a move widely expected by analysts.

The Fed's Open Market Committee decided to leave its main rate unchanged, amid ongoing concerns over economic growth and a weak US housing market.

The rate-setting body last increased the cost of borrowing in June 2006, bringing to an end two years of rises.

Recent comments from the Fed have signalled it may be willing to consider a cut in rates later this year.

In a statement following its rate decision in March, the Fed suggested that inflation fears had subsided slightly, raising the prospect of a possible future cut in rates, analysts said.

But David Jones, of DMJ Advisors, said the latest Fed decision signalled "no change for a while" in the direction of US rates.

Sub-prime worries

Wednesday's decision marked the seventh straight meeting at which the Federal Reserve moved to keep interest rates unchanged.

The latest decision by the Fed comes a day before key rate decisions by the Bank of England and the European Central Bank.

UK interest rates are widely expected to rise by a quarter of a percentage point to 5.5%, because of concerns about inflation.

The Fed's decision comes amid rising concerns about the US housing sector, in particular the sub-prime mortgage market.

Sub-prime lenders provide mortgages to people with poor credit histories, and previous steady increases in US interest rates have pushed defaults to near-record levels.

At the same time, analysts have been questioning whether some of the industry's biggest sub-prime lenders will be able to survive amid the rising tide of defaults.