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Fed delivers 13th quarter-point rate hike
(AP)
Updated: 2005-12-14 10:16 Most economists expect another quarter-point increase at the Fed's next
meeting January 31. That will mark the last meeting for Greenspan, who will
retire after 18-plus year at the helm.
Many economists also expect another quarter-point increase to follow on March
28, which would be Ben Bernanke's first meeting as Fed chief. That would leave
the funds rate at 4.75 percent, where the Fed would move to the sidelines.
Others, however, predict another increase will come at the May 10 meeting,
leaving the funds rate at 5 percent. A few believe the Fed won't stop until the
funds rate is boosted to 5.50 percent in August.
The ultimate course of interest rates will be shaped by what economic
barometers going forward say about the economy's standing and the nation's
inflation climate.
For now, the economic picture looks pretty good, Fed policymakers said.
"Despite elevated energy prices and hurricane-related disruptions, the
expansion in economic activity appears solid," they said. And "core" inflation,
which excludes energy and food prices, "has stayed relatively low," they
observed.
Yet there are inflation risks, they said.
In another important change to the policy statement, Fed members cited
"possible increases in resource utilization" which economists said was code for
a strengthening job market as having "the potential to add to inflation
pressures." Policymakers also dropped a reference contained in many past Fed
statements about healthy productivity gains. Productivity gains help to blunt
inflation.
Altogether, those changes "indicate a higher level of concern with respect to
future inflation," said Mark Zandi, chief economist at Moody's Economy.com.
Economists said that was another signal a few more rate increases probably
will be in the offing. But Zandi said, "They are close to the end of nearly two
years of rising interest rates."
The Fed's action comes against a recent string of largely good economic news.
The economy grew at an energetic 4.3 percent pace in the third quarter
despite the ill effects of the hurricanes. Economists expect solid growth in the
current October-to-December period. A 0.3 percent increase in sales at the
nation's retailers in November, released Tuesday, suggested shoppers are
spending modestly.
Employment, meanwhile, rebounded in November after a two-month lull, with
payrolls expanding by 215,000.
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