FOMC BENCHMARK STILL 2%

The Federal Open Market Committee (FOMC) left its benchmark rate at 2 per cent on Wednesday and said "upside risks" to prices had picked up. The statement also said consumer spending was "firming" while acknowledging that energy prices would curb growth into next year.

Policy-makers are seeking to assure investors and consumers that they'll prevent an escalation of inflation. At the same time, officials want to keep their options open on rate changes in case the credit crisis worsens and the economy deteriorates after consumers spend their tax rebates, observers  said.

"It is a baby step in the direction of raising rates,'' said Stephen Stanley, chief economist at RBS Greenwich Capital Markets in Greenwich, Connecticut. The central bankers signalled "they are not expecting to tighten in the near term. That is as far as they are willing to go," he said.

The FOMC cited "the elevated state" of some measures of inflation expectations and dropped an April forecast of a "levelling out" in commodity prices. It also said employment had weakened.