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The Federal Reserve on Tuesday (March 22) pushed a key interest rate up by a quarter-point to 2.75% as it continued its campaign to gradually nudge rates high enough to make sure that a rebounding economy does not trigger unwanted inflation, reports the Associated Press.
The increase in the federal funds rate, the interest that banks charge each other, marked the seventh time the central bank has pushed rates higher since it started its current credit tightening campaign last June. At that time, the funds rate stood at a 46-year low of 1%.
The Fed’s action quickly translated into higher borrowing costs for millions of consumers and businesses as the benchmark prime rate rose a matching quarter-percentage to 5.75%.
The Fed repeated language that it has used with every rate increase, saying that future rate hikes would occur “at a pace that is likely to be measured,” interpreted as indicating continued quarter-point moves at the central bank’s regular meetings.
However, the Fed did indicate somewhat more concern about inflation, saying, “Though longer-term inflation expectations remain well contained, pressures on inflation have picked up in recent months and pricing power is more evident.”
But the Fed said that it did not believe that the rise in energy prices had “notably fed through to core consumer prices.”
Analysts said this comment supported a view voiced by Federal Reserve Chairman Alan Greenspan and other Fed officials that while energy prices have been increasing, those higher costs have not triggered higher overall inflation pressures.