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Fed delivers 13th quarter-point rate hike
(AP)
Updated: 2005-12-14 10:16
The US Federal Reserve lifted interest rates to the highest level in 4 1/2
years Tuesday but also indicated its 18-month rate-raising campaign was winding
down. At least one more increase in borrowing costs seemed in store to keep
inflation under control.
Chairman Alan Greenspan and his Fed colleagues voted unanimously to boost the
federal funds rate, the interest banks charge each other on overnight loans, by
one-quarter percentage point to 4.25 percent.
It was the 13th consecutive increase of that size since June 2004. That's
when the Fed policy-makers embarked on a credit tightening campaign to lift the
funds rate _ which had been sliced to a 46-year low of 1 percent when the
economy was faltering _ to more normal levels.
Fed policy-makers had mostly positive things to say Tuesday about the
economy, especially its ability to grow solidly despite the Gulf Coast
hurricanes.
In response to the rate increase, commercial banks began increasing their
prime lending rate _ for certain credit cards, home equity lines of credit and
other loans _ to 7.25 percent, also the highest in 4 1/2 years.
For investors and economists, the Fed's words spoke louder than its rate
action, which was expected.
The Fed policymakers, in a statement issued after their closed-door meeting,
eliminated a description they had used each time they raised rates over the past
year and a half _ that even with the increases rates were still quite low.
Economists viewed that deletion as a sign from the Fed that its rate-raising
campaign was drawing to a close.
On Wall Street, stocks got a lift from that, with the Dow Jones Industrials
closing up 55.95 points.
Still, the Fed signaled there is more work to be done before it declares that
the economy and inflation are on an even keel.
The statement said, "Some further measured policy firming is likely to be
needed to keep the risks to the attainment of both sustainable economic growth
and price stability roughly in balance."
Importantly, the Fed opted to keep the word "measured" to describe future
rate increases. Economists have taken that to mean quarter-point rate hikes.
"The underlying message here is that the Fed is rounding for third and
heading for home plate. But they are not finished playing yet," said Stuart
Hoffman, chief economist at PNC Financial Services Group.
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