Fed May Raise Rates Tuesday Despite Katrina

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ith fallout from the Hurricane Katrina disaster projected to slow economic growth over the rest of the year, the Federal Reserve could suspend its campaign of raising interest rates, the Associated Press reported Monday.

The Fed’s Open Market Committee will meet Tuesday to consider its next move on interest rates. Many economists are betting they will lift an important short-term benchmark by one-quarter of percentage point, to 3.75%, AP said.

That would the 11th such increase since the Fed began to tighten credit in June 2004.

Commercial banks would likely increase their prime lending rates by a corresponding amount, to 6.75%, AP said. These rates are used for many short-term consumer loans, including some credit cards and popular home equity lines of credit.

But a main argument for the Fed to stay the course and raise rates is the concern that high energy costs, made worse by Katrina, could filter down and affect the price of all kinds of things, with broader inflation following.

If the Fed pushes rates up again this week, borrowing costs would reach their highest level in four years.