Washington, DC, December 14--The Federal Reserve raised its benchmark short-term interest rate Tuesday to 2.25% from 2%, for the fifth quarter-point increase in as many meetings since June.
Expect more of the same in 2005: Policymakers' post-meeting statement indicated that they are likely to continue tightening credit at this year's pace.
Wall Street had been all but certain of another rate hike, after data in recent weeks that have mostly pointed to a growing U.S. economy. Stocks rallied modestly Tuesday and long-term bond yields eased.
Using language almost identical to what was in its Nov. 10 statement, the central bank Tuesday said the economy's "output appears to be growing at a moderate pace despite the earlier rise in energy prices," and declared that "labor market conditions continue to improve gradually."
As in its previous four statements, the Fed signaled that it expected to continue to raise short-term rates as the economy expands, and "at a pace that is likely to be measured" — which most analysts say will mean a succession of quarter-point increases in the benchmark federal funds rate, the overnight loan rate among banks.
The immediate effect of Tuesday's rate hike will be to raise other short-term borrowing and savings rates. Many major banks quickly raised their prime lending rates by a quarter point, to 5.25%. Rates on money market funds and bank certificates of deposit also will continue to rise, analysts say.
