The US Federal Reserve last night highlighted growing inflation dangers in the world�s largest economy as it held benchmark interest rates at 2% � ending a run of interest-rate cuts which began last September.

The US Federal Reserve last night highlighted growing inflation dangers in the world's largest economy as it held benchmark interest rates at 2% - ending a run of interest-rate cuts which began last September - but signalled no hurry to raise borrowing costs.

Its rate-setting Federal Open Market Committee, crucially, did not declare it was more worried about inflation than growth.

The FOMC's decision not to move to a formal tightening bias signals it is likely to stand pat again at its next meeting on August 5.

Although it began to open up its options by flagging diminishing threats to growth and increasing inflation risks, many economists believe it will hang fire for months. Federal Reserve Bank of Dallas president Richard Fisher's vote for an immediate rise in yesterday's nine-one vote did not change this view.

The FOMC, which cut its benchmark Fed funds rate from 5.25% to 2% between last September and April this year, declared it expected inflation to moderate this year and next.

It also said: "Recent information indicates that overall economic activity continues to expand, partly reflecting some firming in household spending.

"However, labour markets have softened further and financial markets remain under considerable stress. Tight credit conditions, the ongoing housing contraction and the rise in energy prices are likely to weigh on economic growth over the next few quarters."

Citing increases in energy and other commodity prices, it added: "Although down-side risks to growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased."

Paul Ashworth, senior US economist at Capital Economics, said: "For a second time in a row the Fed didn't offer an assessment of how the downside risks to growth stack up against the upside risks to inflation. The former are down while the latter are up, but we don't know whether that means the upside risks to inflation are now the Fed's predominant concern, at least formally.

"If the Fed really was planning a rate hike at its next meeting in August then we would have expected it to switch to a tightening bias. Overall, the more hawkish line on inflation indicates that further rate cuts are now definitely off the table for now, but there is little in today's announcement to suggest that rates will be going up any time soon either."