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Archive for Thursday, November 11, 2004

Federal Reserve pushes rates up another quarter point

Private economists expect increases to continue

November 11, 2004


— The Federal Reserve nudged interest rates up another quarter-point on Wednesday, the fourth moderate rate increase in the past five months, as Fed officials pointed to encouraging signs that the economy was finally rebounding from its summer slowdown.

The generally more upbeat tone to the Fed's official announcement was seen by many private economists as a signal that rates would keep moving higher in coming months.

"The Fed is saying that we have tightened and we are going to keep on tightening," said David Wyss, chief economist at Standard & Poor's in New York.

Federal Reserve Chairman Alan Greenspan and his colleagues took note of a strengthening economy by speaking more positively than they had at their last meeting in September about overall economic growth and the health of the labor market.

"Output appears to be growing at a moderate pace despite the rise in energy prices and labor market conditions have improved," the Fed said. "Inflation and longer-term inflation expectations remain well contained."

The latest move pushed the federal funds rate, the interest that banks charge each other, to 2 percent, double the 46-year low of 1 percent where the funds rate had been before the central bank began pushing rates higher in late June.

Commercial banks quickly followed the Fed's action Wednesday with announcements that they were raising their prime lending rate, the benchmark for millions of consumer and business loans, to 5 percent, up from 4.75 percent.

While just a week ago many investors had thought the Fed might take a pause in their credit tightening campaign, that view changed last Friday after the government released a much stronger-than-expected employment report showing businesses added 377,000 workers to their payrolls.

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