The US central bank's Federal Open Market Committee (FOMC) voted, with a lone dissenting voice, to keep the benchmark US cost of borrowing at 5.25 percent.
It was the first time since June 2004 that the Fed has left the federal funds rate unchanged.
It is a move that will please millions of US consumers and businesses at a time of rising prices and a slowing property market.
Another rise still possible
But the bank did leave itself some room for manoeuvre, having brought the headline rate up from a 46-year low of 1.0 percent to squelch energy-induced inflation in the world's largest economy.
"Economic growth has moderated from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices," the FOMC said.
While inflation readings had been "elevated" in recent months, the panel said, price pressures "seem likely to moderate over time" because of past rate hikes and other factors restraining demand.
"Nonetheless, the committee judges that some inflation risks remain," said the FOMC, leaving room to resume its campaign of rate hikes if needed in the months ahead.
Despite the recent oil price rises Fed Chairman Ben Bernanke has stressed that he believes cooling growth should curb inflation in the coming months, despite the high energy prices and budding wage pressures.
The latest US economic data showed that US workers' productivity slowed abruptly to grow by just 1.1 percent in the second quarter. But at the same time, unit labour costs staged the sharpest jump since the end of 2004.
The report was consistent with a raft of figures that have pointed to the US economy slowing down on the one hand but building up inflation on the other.
Borrowing continues
However, while debt-laden Americans are borrowing even more, the days of luxury purchases like spa vacations and plasma TVs may be over.
Analysts say that consumers are taking out bigger loans against their homes or boosting credit card spending to offset such things as rising interest payments on previous purchases and higher costs at the petrol pump.
"Consumers have found a way to live beyond their means and postpone their day of reckoning," said Greg McBride, senior financial analyst at Bankrate.com.
In the second quarter, US homeowners who refinanced their mortgages converted $81 billion of home equity into cash, up from $74 billion in the first quarter.
Half of the borrowers who paid off their mortgages got new ones at rates almost seven percent higher, according to home finance giant Freddie Mac.
Even though it has become more costly to refinance, rates are still below those on home-equity loans.
Cashing out lets home owners consolidate debt and continue spending on cars, appliances and home improvement, Mr Nothaft said.
Consumer spending, which accounts for about two-thirds of overall economic activity, rose about 2.5 per cent in the second quarter, down from the first quarter's 4.8 per cent.
Spending on travel and restaurants has cooled and much of the pickup in credit-card charges appeared to be for petrol purchases, analysts said.
Slowing retail sales will certainly weigh on the economy, but still relatively easy credit from lenders will buttress spending and prevent an economic storm, analysts said.