US raises rate and warns of more hikes

US Federal Reserve policy makers raised the benchmark interest rate for the 11th straight time yesterday and signalled they may do so again, saying the economy faces only a “near-term” setback after Hurricane Katrina.

The Fed raised the overnight bank lending rate a quarter point to 3.75% after meeting in Washington.

Fed Governor Mark Olson voted against his nine colleagues to argue the rate should be held steady, marking the first dissent in a decision since June, 2003.

“Widespread devastation in the Gulf region, the associated dislocation of economic activity, and the boost to energy prices imply that spending, production and employment will be set back in the near term,” the central bankers said in a statement after the meeting.

“It is the committee’s view that they do not pose a more persistent threat,” the Fed said. Meanwhile oil prices fell 3% yesterday after Opec agreed to make an extra two million barrels a day available and the threat to US refineries from a new hurricane diminished.

Traders reacted positively to the move by Opec because it calmed fears of a shortage of winter fuel supplies, with the cost of US light crude falling as low as $65.10 a barrel before recovering slightly.