The US Federal Reserve has confirmed there are no plans to increase US interest rates in the short to medium term even though there are signs of recovery in the US economy. It would appear that the $1 trillion injection into the economy is starting to have an impact although with inflation under control and the unemployment market yet to respond positively to renewed economic activity, the Fed has taken a cautious approach on US interest rates.

As a consequence we saw the largest fall in the US currency exchange rate for two months as investors, many of whom had banked on the Federal Reserve increasing US base rates, decided to bail out. It is interesting that the authorities have taken this particular decision because ultimately there are fears that inflation will suddenly spring back to life and could, if left unattended, wreck any potential economic recovery in the US and around the world.

This is the difficult balancing act which many governments around the world have, the fact that inflation will burst to life as and when economies recover, but the need to ensure inflation does not eat away at the value of money and ultimately push prices too high too quickly.

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