MercoPress. South Atlantic News Agency

US basic rate climbs to 2% .

The United States Federal Reserve Open Market Committee rose this Wednesday its key federal funds rate by 25 points to 2%, the fourth increase since last June. Although markets were expecting such a move it's the highest since November 2001 when the Fed stated to lower rates in an effort to contain the effects of an incipient recession and the impact of the 9/11 terrorist attacks.

However the decision also responds to mounting evidence that the US economy is regaining strength with a vigorous upturn of the labour market and record exports and with the Fed acting to restrain inflationary pressures but at the same time being careful not to obstruct economic growth. The US economy expanded 3,7% in the third quarter following the 3,3% of the second quarter.

"The Committee perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters to be roughly equal", reads the official Federal Reserve release, adding that "inflation and longer-term inflation expectations remain well contained".

According to Labour Department figures, the US economy last month created 340,000 jobs, double what was forecasted and the highest since last March. Furthermore the US Commerce Department reported that trade deficit last September dropped 3,7% equivalent to 51,7 billion US dollars, below the forecasted 54 billion US dollar. Exports actually increased 0,8% reaching 97,5 billion US dollars and imports 149 billion US dollars. The trade deficit with the Euro zone contracted 29% and now stands at 5,7 billion US dollars but with China it reached a new record of 15,5 billion US dollars.

However if the trade deficit tendency of the first nine months of this year remains, 445 billion US dollars compared to 371 billion in the same period last year, the whole 2004 deficit could reach a record 496,5 billion US dollars.

The official release states that "the Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 2 percent.

"The Committee believes that, even after this action, the stance of monetary policy remains accommodative and, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity. Output appears to be growing at a moderate pace despite the rise in energy prices, and labor market conditions have improved. Inflation and longer-term inflation expectations remain well contained.

"The Committee perceives the upside and downside risks to the attainment of both sustainable growth and price stability for the next few quarters to be roughly equal. With underlying inflation expected to be relatively low, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured. Nonetheless, the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.

"Voting for the FOMC monetary policy action were: Alan Greenspan, Chairman; Timothy F. Geithner, Vice Chairman; Ben S. Bernanke; Susan S. Bies; Roger W. Ferguson, Jr.; Edward M. Gramlich; Thomas M. Hoenig; Donald L. Kohn; Cathy E. Minehan; Mark W. Olson; Sandra Pianalto; and William Poole.

"In a related action, the Board of Governors unanimously approved a 25 basis point increase in the discount rate to 3 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, and Kansas City".