Fed Raises Interest Rates to 2.5%
B>Click here for the full statement from the Federal Reserve.
he Federal Reserve on Wednesday unanimously raised the benchmark U.S. interest rate a quarter-point to 2.5%, the highest since October 2001, and again said it would carry out additional increases at a "measured" pace.
It was the sixth straight meeting dating back to June that the central bank raised rates by a quarter-point. Prior to this ongoing tightening cycle, rates had been at a four-decade low of 1%.
The Fed also said that output appears to be growing at a moderate pace despite the rise in energy prices, and that labor market conditions continue to improve gradually.
Also known as the overnight bank-lending rate, the federal funds rate is the interest banks charge each other on overnight loans and the Fed's main lever for influencing the economy. Low rates can spur consumer and capital spending, which can help the economy and the trucking industry.
The Fed also raised the discount rate on direct loans to commercial banks to 3.5%. The discount rate is linked to the main benchmark.
The Feb. 1-2 meeting was the first of eight scheduled for 2005. The next is scheduled for March 22. Transport Topics
Full Statement from the Federal Reserve
The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 2-1/2 percent.The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. Output appears to be growing at a moderate pace despite the rise in energy prices, and labor market conditions continue to improve gradually. Inflation and longer-term inflation expectations remain well contained.
The Committee perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters to be roughly equal. With underlying inflation expected to be relatively low, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.
Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; Timothy F. Geithner, Vice Chairman; Ben S. Bernanke; Susan S. Bies; Roger W. Ferguson, Jr.; Edward M. Gramlich; Jack Guynn; Donald L. Kohn; Michael H. Moskow; Mark W. Olson; Anthony M. Santomero; and Gary H. Stern.
In a related action, the Board of Governors unanimously approved a 25-basis-point increase in the discount rate to 3-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco.
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