Fed takes interest rates to 3.5 percent
August 9, 2005
As had been expected, the US Federal Reserve Open Market Committee has raised its benchmark interest rate to 3.5 percent as it said it would continue to raise rates at “a measured pace.”
Most analysts take that phrase to mean three more increases before the end of the year, which they expect to take the rate to 4.25 percent.
The Fed is raising interest rates in an attempt to keep inflation in check. It is expected that banks will soon follow the Fed by raising their prime rate, for consumer and business loans, by the same quarter of a percentage point to 6.5 percent.
That would raise the prime rate to its highest point in four years. In its statement that came along with the rate hike, the Fed said that while core inflation has remained relatively low in recent months and expectations for long-term inflation remains contained, pressures toward inflation also persist.
It also said that spending has risen despite high oil prices and that the labor market appears to be improving. Tuesday’s increase in the internet rate is the tenth since last summer, and it returns the rate to its position just before the New York and Washington terrorist attacks of September 11, 2001. The Fed next meets on September 20.