Washington, D.C., United States (AHN) – The U.S. Federal Reserve would likely keep the record-low interest rates, Treasury markets indicate.

According to a Federal Bank of Cleveland study, the U.S. economy is forecast to grow by only 1.1 percent in the 12 months ending June 2012. That rate is less than half of the central bank’s current forecast and would likely result in delaying any key lending rate increase.

The Fed has held benchmark interest rates from zero to 25 basis points since December 2008.

Given the slower growth of the American economy, analysts said that the Fed is not likely to hike interest rate until June next year. That would make it the longest period that the central bank has held on to a low key lending rate since the 1940s when the Fed was forced to buy Treasuries.

From 1937 through 1947, the Fed kept its rediscount rate at 1 percent. It was the last time the American central bank maintained a prolonged monetary support for the ailing U.S. economy.

Another restraint to the expansion of the U.S. economy would be spending cuts to be agreed by U.S. President Barack Obama and Congress before the Aug. 2 deadline to hike Washington’s debt limit of $14.3 trillion.

However, analyst said the biggest hindrance to raising the overnight lending rate from almost zero would be the U.S. economy’s failure to create more jobs. The recession and the global financial crisis led to the loss of 8.7 million jobs in the U.S. in 2008 and 2009. In 2010, only 1.7 million jobs were created, resulting to national unemployment rate rising to 9.2 percent in June from 8.8 percent in March.

Fed Chairman Ben Bernanke placed a condition of sustained period of strong job creation as a basis for declaring an economy recovery. That translates into a gross domestic product growth rate between 2.7 to 2.8 percent.

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Frankfurt, Germany (AHN) – The European Central Bank raised on Thursday key lending rates by a quarter point to 1.5 percent. The rate hike aims to curb inflation, said ECB President Jean-Claude Trichet.

He hinted of more benchmark rate increases in the future, despite weak economic growth in southern Europe and problems in the bond markets. Trichet made the rate hike announcement even if the ECB had been warned that the increase may be bad for the Spanish and Italian economies.

Trichet stressed that all eurozone nations are on the losing end if the regional central bank would fail to rein in price increases through the key lending rate increase. Inflation in the zone hit 2.6 percent in June due to pressure on fuel and food prices.

Following the rate hike announcement, yields on 10-year Italian bonds went up to a high of 5.21 percent, while the Spanish bonds yielded 5.71 percent, but settled down slightly on Thursday/

The ECB, however, waived collateral requirements on Portuguese bonds, which would allow the country’s banks to continue tapping the ECB’s liquidity window after Moody’s downgraded Portugal’s debt to junk. The bank had already waived the rules earlier for Greece.

Trichet cautioned eurozone governments against initiating measures that the credit ratings agency may consider a default, which would trigger billions of euro-worth of complex financial instruments such as credit default swaps, and destabilize the European banking sector.

Analysts said that the announcement would increase borrowing costs and make like harder for nationals of several eurozone economies such as Greece, Portugal, Ireland, Italy and Spain – which are all pushing for belt-tightening measures to reduce national budget deficits amid weak economic growth or recession.

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