Fed raises interest rates

THE Federal Reserve raised US short-term interest rates by another quarter point yesterday, a move that was no surprise to Wall Street.

The Fed also said it expected to keep boosting rates at a measured pace, a possible sign that chairman Alan Greenspan and other Fed members are not worried about inflation even though oil prices recently hit a record high.

The central bank’s Open Market Committee lifted the federal funds rate, which banks use to determine their own lending rates, from 2.5% to 2.75%, its highest level since September 2001.

This is the seventh time the Fed has increased interest rates since June of last year in an attempt to combat inflation.

The Fed has been using the term ‘measured’ to describe its stance on future rate hikes since last May.

Some thought the Fed would drop this language since there have been mounting concerns about pricing pressures taking a toll on the economy in recent months.

The Fed acknowledged some of these pressures in its statement but also appeared to dismiss concerns about rising energy prices.

“Though longer-term inflation expectations remain well contained, pressures on inflation have picked up in recent months and pricing power is more evident,” it said. The initial reaction to the news on Wall Street was negative.

Stocks, which were trading modestly higher before the announcement, lost most of their gains.

Bond prices also fell, pushing the yield on the 10-year treasury bond from about 4.48% to 4.54%.