The Federal Reserve again has boosted the key federal funds interest rate to 3.75 percent, the 11th increase in a year.
The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points, the committee said in a statement.
The Fed committee said Hurricane Katrina’s devastation to the Gulf region implies that spending, production and employment will be set back in the near term. “In addition to elevating premiums for some energy products, the disruption to the production and refining infrastructure may add to energy price volatility,” the Fed said in prepared remarks.
While Katrina’s damage has increased uncertainty about the near-term economy, the committee said the events “do not pose a more persistent threat.”
“(M)onetary policy accommodation, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. Higher energy and other costs have the potential to add to inflation pressures. However, core inflation has been relatively low in recent months and longer-term inflation expectations remain contained,” the Fed said.
The Fed appears ready to raise the funds rate again if needed.
In today’s statement, the Fed said, “The committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal. With underlying inflation expected to be contained, the committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.”
The federal funds target rate is what banks charge each other overnight. It has no direct impact on other rates, such as those for mortgages, but it can alter them indirectly.
So far, there’s been a slight uptick in long-term mortgage rates, but they remain historically low. The average rate on the 30-year mortgage reached 5.72 percent in the Mortgage Bankers Association’s most recent survey, and rates on the 15-year mortgage climbed to 5.29 percent last week.
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