US interest rates hit 5-year high
(AP)
Updated: 2006-05-11 09:56
Federal Reserve boosted Americans' borrowing costs for the 16th time in a row
on Wednesday, the highest level in five years but suggested what happens next
will be much less predictable.
The Federal Reserve
lifted U.S. interest rates for a 16th straight time on Wednesday, and said
it may need to raise rates more to keep inflation risks down in its nearly
two-year-old credit-tightening campaign.
[Reuters] |
Chairman Ben Bernanke and his Fed colleagues left their options wide open to
order yet another increase or to take a break in their two-year rate-raising
campaign.
Decisions on interest rates will hinge more heavily on what upcoming
barometers say about economic activity and inflation, the Fed policymakers
indicated.
If surging energy prices should spark broader inflation, the Fed could opt to
bump up rates again. If the economy should show signs of slowing more than
anticipated, a pause in rate raising could be in store.
To keep the economy and inflation on an even keel, the Fed unanimously
decided on Wednesday to increase its federal funds rate by one-quarter
percentage point to 5 percent. It marked the 16th increase of that size since
the Fed began to tighten credit in June 2004.
The funds rate, the interest that banks charge each other on overnight loans,
affects a variety of other interest rates charged to consumers and businesses
and thus is the Fed's primary tool for influencing economic activity.
In response, commercial banks raised their prime lending rate for certain
credit cards, home equity lines of credit and other loans by a corresponding
amount, to 8 percent.
The actions lifted both the funds rate and the prime rate to their highest
points in just over five years.
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