Washington, DC, September 21--The Federal Reserve raised interest rates again, saying Hurricane Katrina could fuel inflationary pressures but does not pose a persistent threat to the economy.
The 9-1 vote to increase the federal funds target rate by a quarter percentage point to 3.75% leaves the key interest rate at its highest level since August 2001.
The language in the FOMC statement indicated that the central bank would not pause or stop their steady rate hikes this year. The committee said current rates remain "accommodative" and suggested again that rates could be raised at a "measured" pace.
In its statement, the FOMC said Katrina was not a long-term threat to growth. The statement shows that inflation is the principal worry for the Fed post-Katrina, economists said.
"The widespread devastation in the Gulf region, the associated dislocation of economic activity and the boost to energy prices imply that spending, production and employment will be set back in the near term," the committee said.
"While these unfortunate developments have increased uncertainty about near-term economic performance, it is the committee's view that they do not pose a more persistent threat," the statement said.
"Higher energy and other costs have the potential to add to inflation pressures," the committee said. However, core inflation was low and longer-term inflationary pressures were contained.
The next FOMC meeting is on Nov. 1.
