It shows that the Fed is not reassessing the economy's direction in any fundamental way but is making changes at the margin

It shows that the Fed is not reassessing the economy's direction in any fundamental way, but is making changes at the margin to its decisions last week.The last increase in US interest rates was in 1997, but apart from this the Fed has been reducing rates for four years. Interest rates peaked at 6 per cent in February 1995 and stayed there for four months. The low point of interest rates in the last cycle was 3 per cent. But the shift to a neutral bias reassured the market that the Fed might not raise rates in the near future.The announcement leaves the Fed chairman Alan Greenspan with the maximum room for manoeuvre. The markets had been expecting the Fed to come back with further rises after the economic data for the first half of the year are in and the direction of the US economy becomes clearer.

Accordingly, the full degree of adjustment is judged no longer necessary."The markets had been expecting a quarter point rise, but some analysts feared that a half-point rise might be on the agenda. Since then much of the financial strain has eased, foreign economies have firmed, and economic activity in the US has moved forward at a brisk pace. The Fed lowered rates three times at the end of last year, after international economic crisis shook US financial markets. Since then, it has reassessed both domestic and international conditions and decided to revisit the decisions."Last fall the committee reduced interest rates to counter a significant seizing-up of financial markets in the US," said a statement from the Federal Open Market Committee. But Ian Shepherdson, of High Frequency Economics in New York, warned that the decision by traders on Wall Street to send shares soaring was a "knee jerk reaction".He said the market was reacting to the Fed's decision to alter its bias from "tighten" to "neutral", adding: "Once the economists produce their views on it tomorrow it will all change."He said all previous recent rate rises had been accompanied by a corresponding change in stance and that not too much should be read into it.The decision to raise rates had been heavily signalled by the Fed for months in advance. "The committee, none the less, recognises that in the current dynamic environment it must be especially alert to the emergence, or potential emergence, of inflationary forces that could undermine economic growth."US stock markets rallied on the news, with the benchmark Dow Jones industrial index gaining 130 points to 10943.6.

It did not lift the discount rate and said it had shifted back to a neutral bias in its policymaking, indicating that it was agnostic as to whether the next move should be up or down. "Owing to the uncertain resolution of the balance of conflicting forces in the economy going forward, the FOMC has chosen to adopt a directive that includes no predilection about near-term policy action," the Fed said. US MARKETS leapt upwards yesterday as the Federal Reserve signalled that its first rise in interest rates for two years might not be followed by any more imminent increases. The Federal Open market Committee raised interest rates for the first time in two years, lifting the federal funds rate to 5.0 per cent from 4.75 per cent. LME said Merrill should have realised this and that its clients were trying to squeeze the copper market.Alan Whiting, LME executive director of regulation, said: "By failing to appreciate that its clients were attempting to manipulate the market and by failing to pursue the concerns of its representatives, Merrill Lynch assisted the attempt and failed to observe high standards of market conduct."In the US, David Spears, the CFTC's acting chairman, said: "The Commission's order sends an important message to market participants and their brokers that aiding and abetting manipulation of US markets will be met with appropriate sanctions.". Hamanaka, who was sentenced to eight years in prison in Japan, cornered the market by buying much of the copper stocks held by the LME.Global Minerals and Management, a US copper merchant that had accumulated copper warrants on behalf of Sumitomo using $500m of finance provided by Merrill had misrepresented the purpose of the deals. The investigation relates to July 1996 when Sumitomo reported losses of $2.6bn (pounds 1.65bn) in 10 years of unauthorised trading by Yasuo Hamanaka, its chief copper trader. our determination to maintain the integrity of the LME markets."Its disciplinary committee found Merrill had "assisted clients to manipulate the LME copper market or create a disorderly market" and that it "failed to observe the required standards of market conduct".