Just as many economists had predicted, the Ben Bernanke-led Federal Open Market Committee today announced the 17th consecutive increase in the federal funds rate, to 5.25 percent.
The committee approved a rate increase of 25 basis points, citing elevated inflation and high energy prices as contributing factors.
“Recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices,” according to a committee statement.
“Readings on core inflation have been elevated in recent months,” the committee stated. “Ongoing productivity gains have held down the rise in unit labor costs, and inflation expectations remain contained. However, the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures.
“Although the moderation in the growth of aggregate demand should help to limit inflation pressures over time, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information. In any event, the Committee will respond to changes in economic prospects as needed to support the attainment of its objectives,” the committee stated.
In a related action, the Federal Reserve Board of Governors unanimously approved a 25-basis-point increase in the discount rate to 6.25 percent.