In a widely expected move, the Federal Open Market Committee today raised its target for the federal funds rate by 25 basis points to 4-3/4 percent, a five-year high.
The meeting of the committee marked the first time Ben Bernanke, new head of the Federal Reserve, had a chance to make a direct impact on interest rates. The raise applies to the amount of interest banks can charge each other for overnight funds.
“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,” the committee said in a widely anticipated statement issued after the meeting.
The statement seemed to suggest that the Fed’s raising of interest rates, which have gone up for the last 15 meetings in a row, is not over.
Analysts and observers had expected interest rates to rise, and most of the anticipation around the meeting centered on the statement that accompanies the announcement of the committee’s decision.
“The slowing of the growth of real GDP in the fourth quarter of 2005 seems largely to have reflected temporary or special factors. Economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace,” the statement said.
“As yet, the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation, ongoing productivity gains have helped to hold the growth of unit labor costs in check, and inflation expectations remain contained. Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures,” the statement said.
