Fed Raises Rates a Quarter Point
WASHINGTON (AP) _ The Federal Reserve raised interest rates by a quarter point today, boosting a key rate for the third time this year in an effort to slow the sizzling U.S. economy and keep inflation from becoming a problem.
The announcement came after a closed-door meeting of the Federal Reserve Open Market Committee, the policy-makers who set interest rate policies.
The Fed said it was increasing its target for the federal funds rate _ the interest banks charge each other on overnight loans _ to 5.50 percent from 5.25 percent.
It also raised its mostly symbolic discount rate, the interest that the Fed charges to make direct loans to banks, by a quarter point to 5 percent.
In a statement explaining its decision, the Fed said, ``Although cost pressures appear generally contained, risks to sustainable growth persist.″
Fed policy-makers said that while there had been some slowing of economic activity, they were worried that the pace of growth ``continues in excess of the economy’s growth potential.″
The Fed’s quarter-point increase in the funds rate was expected to be followed quickly by announcements from commercial banks that they were boosting their prime lending rate by a similar quarter point, from the current 8.25 percent to 8.50 percent.
The prime rate is a key benchmark for millions of loans, from home equity and credit card balances to short-term loans for small businesses.
The Fed’s decision marked the third time this year the central bank has raised the funds rate.
On June 30, the Fed nudged up the federal funds rate by a quarter of a point, the first time in two years. It raised the funds rate again, by the same amount, on Aug. 24.
The Fed’s action today moves short-term rates the Fed controls back to where they were before the central bank cut rates in three quarter-point moves in the fall of 1998 to keep financial turmoil in Asia and Russia from derailing the U.S. economy.