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Unhappy with rising prices, the Federal Reserve raised interest rates Thursday (June 29) by a quarter percentage point as expected.
CBS MarketWatch reported that the Fed has hiked rates at 17 straight meetings since June 2004, bringing its target Fed funds rate from a four-decade low of 1% to 5.25%, the highest level since March 2001.
The statement from the Federal Open Market Committee (FOMC) was overhauled from earlier statements. It suggested that some “inflation risks remain,” even as economic growth cools, and that softer stance helped fuel a rally on Wall Street Thursday,
“Although the moderation in the growth of aggregate demand should help to limit inflation pressures over time, the committee judges that some inflation risks remain,” the statement said.
“Recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of interest rates and energy prices,” the committee said.
The rate hike was widely expected after hawkish commentary over the past six weeks from Fed officials, especially Fed chief Ben Bernanke. The vote to raise rates was unanimous.
Many economists and the market predict the Fed could be done after one more move to 5.50% in August. But a growing number of Fed watchers have been raising their expectations of the year-end Fed funds rate to 6.0%.
Fed officials have said their next moves are “data-dependent” or based on how the incoming economic data fit in with the Fed’s forecast of moderate growth along with relatively contained inflation.
While some economists fear the Fed may go too far and push the economy into a recession, others say the Fed has no choice but to raise rates because the strong economy continues to put upward pressure on prices.