The US Federal Reserve left its key interest rate unchanged at 5.25 per cent last night, but warned that this pause may not mark the end of a campaign that has raised the rate from one per cent in an unbroken series of 17 increases since mid-2004.
The vote on the central bank's policy-setting Federal Open Market Committee was not unanimous. Jeffrey Lacker, president of the Richmond Fed, opposed the no-change decision.
Recent economic indicators have pointed to an easing US economy, led by a cooling housing market. But wages and prices continue to rise and the Fed suggested it could raise the cost of borrowing again.
"Inflation pressures seem likely to moderate over time, reflecting contained inflation expectations and the cumulative effects of monetary policy actions and other factors restraining aggregate demand," it stated after last night's meeting.
"Nonetheless, the committee judges that some inflation risks remain," it added, saying any further moves in interest rates will depend on the out-look for prices and growth.
As the Fed's meeting began, the US Government reported that growth in second-quarter productivity slowed to a 1.1 per cent annual rate from 4.3 percent in the first quarter. That reflected a 4.2 per cent jump in unit labour costs, the fastest since the end of 2004 and well above the first quarter's 2.5 per cent - indicating quickening inflation despite slower growth.
After its last meeting on June 29, the Fed cited steady productivity gains as helping to curb inflationary expectations, a conclusion that may now be questioned.
In recent speeches, Fed officials have highlighted evidence of an easing US economy, stressing that the full impact of earlier interest rate increases has yet to be felt.
They also expressed hopes that slowing growth might dampen upward price pressures.
In the second quarter, the US economy grew at an annual rate of 2.5 per cent, a sharp change from 5.6 per cent in the first three months of the year.
Official numbers last Friday showed only 113,000 jobs were created in July, down from 124,000 in June and well below the first quarter's monthly average 176,000.