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The Federal Reserve is expected to raise interest rates by a quarter-point, to 4%, when it meets Tuesday, economists say, noting that growth remains robust while inflation has been rising despite 11 previous rate increases since June 2004.
The policymaking Federal Open Market Committee has raised its target for a key short-term interest rate to 3.75% from 1%, in quarter-point increments, since mid-2004. Fed officials want to bring rates to a neutral level that neither slows nor overstimulates the economy, but they haven't said what that level is. Inflation pressures intensified after Hurricane Katrina, though they are moderating.
Crude oil for December closed at $61.22 a barrel Friday, down from highs near $70 shortly after the hurricane.
"With all the hysterical talk about inflation by several Fed officials, I guess I would say I wouldn't be surprised if they did a (half-percentage-point) increase. It would not be my forecast," said Ken Mayland of Clearview Economics, who expects the Fed to move by a quarter-point Tuesday and gradually raise rates to 5%.
The Commerce Department said Friday that the economy grew at a robust 3.8% in the third quarter of 2005, despite the impact of Hurricane Katrina. A special Commerce measure of inflation rose at a 3.7% pace, the fastest in over a year. However, core inflation, which doesn't include food and energy, was up a more moderate 1.3%. The Fed monitors the core figure.
Brian Wesbury, chief economist at Claymore Securities, said that even if the Fed was not worried about rising inflation, it would still have to keep raising rates. He says the Fed pushed rates too low in 2000-03.
"The Fed way overdid it," said Wesbury, who also expects officials to raise rates to 5% by mid-2006. "All they're doing is bringing (rates) to a neutral level."
One question for economists is whether thependingretirement of Fed Chairman Alan Greenspan, who is set to leave the Fed on Jan. 31, and his likely replacement by Ben Bernanke, chair of the White House Council of Economic Advisers, will affect near-term rate decisions. Greenspan willpreside overrate meetings in December and January.
(Agencies)
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Updated: 2005-11-01 10:43
