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Fed Raises Interest Rates 0.25

August 24, 1999

WASHINGTON (AP) _ The Federal Reserve today raised interest rates for the second time in eight weeks in an effort to cool the economy by making it more expensive for Americans to borrow.

The Fed said it was increasing its target for the federal funds rates _ the interest banks charge each other on overnight loans _ to 5.25 percent from 5 percent.

It marked the second time this summer that the Fed has raised this rate. It boosted the funds rate from 4.75 percent to 5 percent on June 30, the first increase in two years.

To drive home its efforts to fight inflation, the Fed also announced it was raising its discount rate, the interest that it charges for direct loans to banks, by a quarter of a point as well. The discount rate was increased to 4.75 percent, the first increase in the discount since Feb. 1, 1995.

The increase in the federal funds rate had been widely expected. And some analysts had also forecast the central bank would boost the largely symbolic discount rate as a way of underscoring its inflation-fighting resolve.

In a statement, the Fed said that its actions today and the June 30 rate increase should ``markedly diminish the risk of rising inflation going forward.″

Accordingly, the central bank said it was keeping its policy directive, which signals possible future actions, on neutral. It had switched to a neutral directive following its June 30 rate increase.

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