MercoPress. South Atlantic News Agency

Federal Reserve raised basic rate to 2,25%

The United States Federal Open Market Committee unanimously decided Tuesday to raise its target for the federal funds rate by 25 basis points to 2,25%, the fifth increase since June. The decision was anticipated by money markets.

"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", highlighted the Federal Reserve release.

"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 earlier rise in energy prices, and labor market conditions continue to improve gradually. 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 3-1/4 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, Kansas City, Dallas, and San Francisco".

The US economy expanded at an annual 3,9% in the third quarter and is expected to increase further in the last quarter of 2004. Consumption grew 0,8% last October and 0,1% in November, above market forecasts. However the US trade deficit marked a new record last October reaching 55,5 billion US dollars which will have a negative impact on the US dollar that has depreciated almost 15% since the beginning of 2004. The Federal Reserve's next meeting is scheduled for February 2005.