In a widely expected move, the Federal Open Market Committee decided today to raise its target for the federal funds interest rate to 4.5 percent.
The decision marks the 14th straight time the Fed has raised interest rates over the last 19 months. The meeting in which the decision was made was the last for Fed head Alan Greenspan, the chairman of the committee and a looming figure on the American economic scene for 18-1/2 years.
Ben Bernanke, who has been nominated as his successor, faces a confirmation vote in the Senate today. The vote is expected to be positive.
Along with the news of its rate-raising decision, the committee also published its thoughts on the economy. These carefully worded statements are closely watched for indications of possible future actions by the Fed.
“Although recent economic data have been uneven, the expansion in economic activity appears solid. Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained,” the statement said.
“Nevertheless, possible increases in resource utilization, as well as elevated energy prices, have the potential to add to inflation pressures,” the Fed continued.
“The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives,” the Fed said.
The statement seemed to hint that future interest rate hikes might be in store.
The federal funds rate is the interest rate banks charge each other for overnight loans. Though it does not directly affect long-term interest rates such as those charged on mortgage loans, there is a close relationship between the two.
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