Washington, DC, November 11 -- The Federal Reserve raised interest rates for the fourth time this year, and left the door open to continue raising rates in coming months.
The Fed's interest-rate setting body raised its target for the federal-funds rate, charged on overnight loans between banks, to 2% from 1.75%, as widely expected. It was the fourth consecutive meeting that the Fed has boosted the rate a quarter of a point since June, when it stood at a 46-year low of 1%.
In an accompanying statement little changed from that released in September, the Fed said, "Output appears to be growing at a moderate pace, despite the rise in energy prices, and labor market conditions have improved."
That was a more upbeat reading that in September, when it said output growth had regained "some traction" and the job market had improved modestly. It said, "Inflation and longer-term inflation expectations remain well contained."
Stocks and bonds showed only muted response, but the dollar rose against the euro and yen.
With the funds rate at 2%, there is now widespread debate about whether the central bank will slow its pace of increases. The Fed gave no hint that it will pause. It said, as it has for the last few meetings, that with inflation low, it can continue to raise rates "at a pace that is likely to be measured." But Fed officials have said that "measured" could entail skipping a meeting or two.
Fed officials have said that their initial rate increases have not been motivated by any fear that the economy is overheating. Indeed, growth stumbled during the summer and the Fed kept raising rates.
Rather, their priority has been to reverse the emergency rate-cuts of 2001 through 2003, enacted to absorb multiple shocks to the economy and limit the risk of deflation, that is generally falling prices. With that risk now passed, Fed chairman Alan Greenspan has said that leaving rates at 1% ran too high a risk of fueling inflation later on.
The Fed considers a 2% funds rate still lower than "neutral," the level that neither stimulates nor restrains growth. But it is higher than the underlying inflation rate of about 1.5%, so the real cost of borrowing is finally above zero. That has made Fed officials content to let future rate changes depend primarily on the flow of economic data.
