Leading shares soared on Wall Street last night after the Federal Reserve held US interest rates and boosted investors’ hopes that it remains in little hurry to begin imposing increases.

The Dow Jones industrial average leapt by 2.5 per cent after the US central bank coupled its widely expected decision to hold its key Fed Funds rate at 2 per cent with a largely neutral statement signalling that potential rate rises remain at least some way off.

In a delicately balanced assessment of US conditions, the Fed strove to reassure edgy world markets that it remains alert to dangers from both a severe economic downturn, as well as rising inflationary pressures.

After US consumer prices rose at an annual rate of 5 per cent in June, the Fed’s rate-setting Open Market Committee (FOMC) sought to make clear that in remains on its guard against inflation.

“Inflation has been high,” it said. “Although downside risks to growth remain, the upside risks to inflation are also of significant concern.”

However, Wall Street traders and analysts seized on the FOMC having dropped its June comment that the risks of higher inflation had increased as a sign that the Fed still had no bias over the direction of its next move on US rates.

In what was also taken as a further signal of a slightly more doveish Fed stance, the statement also dropped June’s observation that dangers to US growth had “diminished somewhat”.

Having abandoned what many economists had attacked as a rose-tinted view, the FOMC instead said: “Tight credit conditions, the ongoing housing contraction and elevated energy prices are likely to weigh on economic growth over the next few quarters.” In an effort to keep open the door to eventual rate increases, however, it also insisted that despite rising concern over US prospects for the rest of the year, it had laid the groundwork for eventual economic recovery.

“Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth,” it said.

Wall Street’s hopes that the less aggressive rhetoric in last night’s Fed statement signalled that higher US interest rates were far from imminent were also boosted as only one of eleven voting FOMC members, Richard Fisher, president of the Fed’s Dallas branch, dissented from last night’s decision to hold rates. Ahead of yesterday’s Fed meeting there had been widespread speculation that he could be joined by several other in pressing Ben Bernanke, the Chairman of the Fed, for an immediate rate rise.

Betting that US rates will remain pegged for some time sent the Dow climbing more than 270 points by mid-afternoon, while the broader-based S&P 500 rose 2 per cent and the dollar saw earlier gains pared back.

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