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US Fed keeps rates on hold -

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TONY EASTLEY: The US Federal Reserve has pointed to the unfolding turmoil in Europe as a big risk
to the world's biggest economy.

I'm joined in the studio now by our Business editor Peter Ryan.

Pete, good morning. As Martin Parkinson noted, Europe remains the big concern for Australia. What
does the US Federal Reserve say about America's exposure?

PETER RYAN: Tony, in his final statement for the year the Fed chairman Ben Bernanke pointed to
strains on the global financial markets that he says pose significant risks to America' economic

He signalled that Europe crisis threatens to unravel the, albeit mild, recovery in America over the
last month or so. And this morning he confirmed the US economy had been expanding moderately
despite slowing global growth

The Fed is also seeing some improvement in the labour market, though unemployment remains elevated
at 8.6 per cent. The housing sector remains depressed despite better business investment.

So any meltdown in Europe or fracturing of the eurozone would hit America very hard with more
sluggish growth. And that of course is a very big risk in 2012.

TONY EASTLEY: The US Fed Reserve has left interest rates on close to zero, sort of interest rates
but Wall Street has gone into the red. Why did that happen?

PETER RYAN: Well Tony rates have been on hold at between zero and 0.25 per cent since December
2008. Since then, the Fed has kicked in about $2 trillion into the US economy, buying bonds to help
kick start the economy.

That hasn't been working despite two tranches of quantitative easing - the metaphorical printing of

This morning the Fed said rates would remain exceptionally low until mid 2013 but the market wanted
to see word of a third tranches of QE3. That didn't happen. The Dow flatlined before closing in
negative territory, down more than 0.5 per cent

TONY EASTELY: And finally, the Australian dollar has taken a hit - now back below parity. Why is

PETER RYAN: Well Tony, risk positions are being scaled back, money's pouring back to the havens of
US Treasury bonds and the US dollar.

So this morning the Australian dollar is down 1 per cent to 99.9 US cents.

TONY EASTLEY: Business editor Peter Ryan, thank you.