Fed pushes interest rates up again

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

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

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 1.50%.

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

As a result of the Fed’s decision to push up the funds rate, commercial banks were 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%.

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 today.

Fed policy-makers suck to their view that future rate increase would be gradual.

They said rates could be raised raised at “a pace that is likely to be measured” given that inflation is expected to remain relatively low.

On the US economy, the Fed said 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.