The 12-member Federal Open Market Committee today (Nov. 10) unanimously raised its benchmark federal funds rate — the rate on overnight loans between banks — to 2% from 1.75%.
It marks the fourth quarter-point increase since July.
For months, the Fed has telegraphed its intention to raise rates “at a measured pace” to keep prices from climbing as the economy continues to recover and demand for goods and services increases.
As a result of the Fed’s decision to push up the funds rate, commercial banks increased their prime lending rate for many short-term consumer and business loans by a corresponding amount to 5 percent from 4.75 percent.
The benchmark prime rate is a key economic factor for the RV industry. The historically low prime rates have helped fuel sales, allowing dealers to maintain higher inventory levels while consumers benefited from lower interest rates on loans.
In its statement, the Open Market Committee upgraded its assessment of the economy from its last meeting, saying growth was moderate and labor markets had improved. Earlier, the Fed had said growth was “picking up some traction” while labor markets were said to have improved “modestly.”
Eyes are now focused on the committee’s Dec. 14 meeting. Ahead of today’s announcement, the financial markets were giving an 80 percent chance of a rate hike in December and were looking for a 2.75 percent fed funds rate in June 2005, a pace that calls for the committee to skip one meeting, according to CBS Marketwatch.
Many economists estimate the Fed eventually will push rates as high as 3.5% to 4.5%. Other experts say it will temporarily halt its upward march around the 2% level to assess what effect higher interest rates, high oil prices and other negative factors are having on the economy.