MercoPress. South Atlantic News Agency

Fed raises basic rate to 3%, and promises more

Arguing that “pressures on inflation have picked up in recent months and pricing power is more evident” the United States Federal Open Market Committee decided Tuesday to raise its target for the federal funds rate by 25 basis points to 3 percent.

This is the eighth consecutive increase since last June and the FOMC warns that if will respond to changes as needed "to fulfill its obligation to maintain price stability".

Analysts had widely predicted the rise as the Fed had been caught between a sudden economic slowdown and heightened worries about inflation. The move was also consistent with its vow to move rates at a "measured pace", which experts have taken to mean small quarter percentage point increases.

The official release states that 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. Recent data suggest that the solid pace of spending growth has slowed somewhat, partly in response to the earlier increases in energy prices. Labor market conditions, however, apparently continue to improve gradually. Pressures on inflation have picked up in recent months and pricing power is more evident".

"The Committee perceives that, with appropriate monetary policy action, the upside and downside risks to the attainment of both sustainable growth and price stability should be kept roughly equal. With underlying inflation expected to be contained, 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; Susan S. Bies; Roger W. Ferguson, Jr.; Richard W. Fisher; Edward M. Gramlich; Donald L. Kohn; Michael H. Moskow; Mark W. Olson; Anthony M. Santomero; and Gary H. Stern. In a related action, the Board of Governors unanimously approved a 25-basis-point increase in the discount rate to 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.