US Fed to continue stimulus drive
The United States is to continue its vast economic stimulus drive, defying expectations of a landmark retreat.
The US Federal Reserve said America is not yet ready to be weaned off its huge quantitative easing (QE) programme while its recovery remains fragile, and will continue pumping 85 billion US dollars (£53 billion) a month into the world's biggest economy.
The central bank's hesitancy shocked markets, which had widely expected it to begin tapering QE with a 10 billion US dollars (£6.3 billion) reduction in monthly asset purchases.
Sterling was sent sharply higher against the dollar to 1.60 and the Dow Jones Industrial Average soared to an all-time high on Wall Street.
But the Federal Reserve said although the US economy continues to recover, unemployment remains high and interest rates on mortgages have been rising.
The central bank concluded a two-day monetary policy meeting by saying it wants "more evidence" on growth, and insisted asset purchases are "not on a preset course"
It said while risks to the US economy and jobs market have shrunk, "the tightening of financial conditions observed in recent months, if sustained, could slow the pace of improvement in the economy and labor market".
Jeremy Cook, chief economist at World First foreign exchange, said the Federal Reserve's surprise hesitancy suggests "all is not well in the United States".
Its pivotal decision to hold fire on scaling back asset purchases follows months of frenzied speculation which has sent financial markets haywire.
America has pumped trillions of dollars into its economy in an effort to stimulate growth and recover from the deepest downturn since the Great Depression in the 1930s.
The Federal Reserve's balance sheet has swollen to around 3.7 trillion US dollars from 869 billion US dollars in August 2007.
Tapering would have represented the first shift in the direction of policy since the Federal Reserve last raised interest rates in 2006.
The prospect of tapering has caused volatility in markets ever since Federal Reserve chairman Ben Bernanke suggested in May that asset purchases might be slowed later in the year.
The Syria crisis and the ongoing battle over extending the US debt ceiling have added to uncertainty around US monetary policy.
The central bank has already said it will not raise interest rates until unemployment drops to 6.5%.
The jobless rate is currently 7.3% but there are signs of economic improvement after the US grew at an annual pace of 2.5% in the second quarter.
Meanwhile minutes of the Bank of England's September monetary policy meeting today showed members voted unanimously to keep its quantitative easing programme steady at £375 billion as Britain's recovery gathers pace.
Rather than employ more QE, the Bank has opted for a radical new policy of forward guidance - pledging to keep rates at their record low until unemployment drops to 7%, barring a spike in inflation.