=DJ Fed Lifts Rates 0.25-Pt to 4.75%; Signals May Hike More
By Brian Blackstone
Of DOW JONES NEWSWIRES
WASHINGTON (Dow Jones)--New management, same result.
The Federal Reserve on Tuesday ushered in the Ben Bernanke era the same way it ended the Alan Greenspan era, with a quarter-point boost in official interest rates, the 15th-straight increase of that size.
Policymakers also signaled their willingness to raise rates again in May and perhaps beyond to ward off possible inflationary pressures.
The Federal Open Market Committee, as universally expected, voted unanimously to raise its Federal funds target by 25 basis points to 4.75%, its highest level since April 2001. It raised the largely symbolic discount rate by 25 basis points to 5.75%.
In a Dow Jones Newswires and CNBC poll earlier this month, all 21 major banks and brokerage firms surveyed said they expected a Fed funds rate hike of that magnitude.
"Economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace," the FOMC stated.
Possible increases in resource use and elevated energy prices "have the potential to add to inflation pressures," the FOMC said.
Meanwhile, policymakers said "some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance" - repeating the assessment they made in January under Greenspan.
That Bernanke stuck largely to Greenspan's script wasn't surprising. After all, FOMC statements represent a consensus view of all policymakers, and injecting new elements at Bernanke's first meeting risked appearing heavy-handed.
Some Fed watchers said the FOMC minutes - which will be released in three weeks and contain considerably more information on the Fed's thinking - are a better sounding board to eventual changes in the policy statement.
In addition, the flow of economic data between January and March appears to call for additional restraint, and most eocnomists expect another quarter-point rate increase at the FOMC's next meeting in May.
The jobless rate sits near five-year lows and the U.S. generated more than 400,000 new jobs in the first two months of 2006 amid signs that wage growth is accelerating.
Robust consumer spending to start 2006 should lead to gross domestic product growth well in excess of 4%, above the 3.25% to 3.5% pace that's considered the economy's noninflationary potential.
Inflation, meanwhile, remains at the upper end of the Fed's 1% to 2% comfort zone, with the core personal consumption expenditures index minus food and energy, the Fed's preferred gauge, rising at a 1.8% year-on-year rate.
But at the same time, downside risks to growth later this year have materialized, particularly from housing as the Fed's nearly two-year tightening campaign has finally started to bite on that rate-sensitive sector.
Home sales data have generally cooled since late last year, albeit from record levels. But a report last week of a 10.5% slump in February new home sales triggered fears that the housing slide could turn more serious and threaten the expansion. |
