In a widely expected move, the Federal Open Market Committee today raised its target for the federal funds rate by 25 basis points to 5 percent, its 16th straight rate hike.
“The Committee sees growth as likely to moderate to a more sustainable pace, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices,” the committee said in a much-anticipated statement accompanying the news of the rate hike.
This was the second such meeting in which 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, but indirectly impacts other interest rates as well.
“The Committee judges that some further policy firming may yet be needed to address inflation,” the Fed said, suggesting that another interest-rate hike might be in store, adding, “but (the Committee) emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information.”
According to the Committee, “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 concluded, “In any event, the Committee will respond to changes in economic prospects as needed to support the attainment of its objectives.”
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