Fed boosts borrowing costs

? Ben Bernanke, sticking with the Federal Reserve’s playbook in his first meeting as chairman, raised interest rates to a five-year high and hinted that an additional increase could be in store.

Wrapping up a two-day meeting Tuesday, Bernanke and his Fed colleagues struck a mostly positive tone, saying the economy “rebounded strongly” in the January-to-March quarter from an end-of-year lull. But Fed policymakers raised concerns about the potential for inflation to flare up.

On Wall Street, stocks tumbled as investors expressed disappointment that more rate increases could be in the offing. The Dow Jones industrials lost 95.57 points to close at 11,154.54.

In a unanimous decision, the Fed raised its key interest rate – the federal funds rate – by one-quarter of percentage point, to 4.75 percent. This rate, which is the interest that banks charge each other on overnight loans, affects other rates charged to consumers and businesses.

Commercial banks reacted by lifting their prime lending rate – for certain credit cards, home equity lines of credit and other loans – by a corresponding amount, to 7.75 percent

Both the prime rate and the funds rate are at their highest since the spring of 2001.

It was the 15th such increase since the Fed started tightening credit in June 2004.

Some economists and investors hoped Bernanke would have indicated that Tuesday’s increase was the last; he did not.

“The committee judges that some further policy firming may be needed” to keep inflation and the economy on an even keel, policymakers said in a statement after their meeting.