The Federal Reserve has boosted a key interest rate to 3.5 percent, the 10th increase in the past year.
The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 3-1/2 percent, the committee said today in a statement.
The move was a widely expected one. Augustine Faucher, a senior economist at Economy.com, had said, “The economy is doing quite nicely, so we expect the Fed to continue to tighten,” the Miami Herald reported. Faucher forecasted Fed rate hikes through 2006, at a slower pace, ending next year at 4.75 percent, according to the Herald.
In carefully couched language, the Committee today said it believes that, “even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity.”
According to the Committee, “Aggregate spending, despite high energy prices, appears to have strengthened since late winter, and labor market conditions continue to improve gradually. Core inflation has been relatively low in recent months and longer-term inflation expectations remain well contained, but pressures on inflation have stayed elevated.”
The Committee also noted, “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 said, it will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.
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