[QODLink]
Archive
US Fed raises interest rates

The Federal Reserve has boosted a key short-term interest rate by one-quarter of a percentage point, marking the third increase this year.

Last Modified: 21 Sep 2004 18:52 GMT
Greenspan and colleagues raised rates from 1.5% to 1.75%

The Federal Reserve has boosted a key short-term interest rate by one-quarter of a percentage point, marking the third increase this year.

It is part of a gradual process to wean the economy from extraordinarily low rates that are no longer viewed as necessary to keep the economy afloat.

  

On Tuesday, Fed Chairman Alan Greenspan and his Federal Open Market Committee colleagues -  the group that sets interest-rate policy in the United States - increased the target for the federal funds rate to 1.75%, from 1.5%.

 

The funds rate is the interest banks charge each other on overnight loans and is the Fed's primary tool for influencing economic activity.

  

Corresponding increase

 

As a result of the Fed's decision to push up the funds rate, commercial banks are expected to increase by a corresponding amount their prime lending rate for many short-term consumer and business loans to 4.75%, from 4.50%.

 

Some analysts believe the funds
rate will rise to 2% by year's end

The Fed's rate-raising campaign began in June when the central bank ordered its first rate increase in four years.

 

That was followed by a rate increase in August and then by another on Tuesday.

  

Fed policy-makers stuck to their view that future rate increases would be gradual. It said rates could be raised at "a pace that is likely to be measured" given that inflation is expected to remain relatively low.

 

Traction

  

On the economy, the Fed said economic growth "appears to have regained some traction" and "labour market conditions have improved modestly".

  

Despite the rise in energy prices, inflation has eased in recent months, the Fed added.

  

The vote was unanimous.

  

The Fed's rate increase comes with elections just six weeks away.

 

Analysts believe the funds rate will rise to 2% by the end of this year. Economists, however, have mixed opinions on how additional rate increases will unfold after Tuesday's meeting.

 

Some believe the Fed will boost rates again at its 10 November meeting. Others believe the Fed might take a breather at the November meeting, but raise rates in December.

Source:
AFP
Topics in this article
Country
Organisation
Featured on Al Jazeera
More than one-quarter of Gaza's population has been displaced, causing a humanitarian crisis.
Ministers and MPs caught on camera sleeping through important speeches have sparked criticism that they are not working.
Muslim charities claim discrimination after major UK banks began closing their accounts.
Italy struggles to deal with growing flood of migrants willing to risk their lives to reach the nearest European shores.
Featured
Thousands of Houthi supporters have called for the fall of Yemen's government. But what do the Houthis really want?
New ration reductions and movement restrictions have refugees from Myanmar anxious about their future in Thailand.
US lawyers say poor translations of election materials disenfranchise Native voters.
US drones in Pakistan have killed thousands since 2004. How have leaders defended or decried these deadly planes?
Residents count the cost of violence after black American teenager shot dead by white Missouri police officer.
join our mailing list