Another Fed Funds Rate Hike In December?

By John S. McClenahen Seconds after the Federal Open Market Committee announced Nov. 10 it was raising the influential federal funds target rate to 2%, speculation began about what the panel will do at its next scheduled meeting on Dec. 14. "Obviously, given our call that the Fed is now on hold until the end of 2005, we would have preferred to see the Fed point out that the 100 [basis points] of tightening done so far this year has removed a significant amount of accommodation," said Merrill Lynch & Co., New York. The federal funds rate is the interest banks charge each other on overnight loans. The truth is that the 12 voting members of the FOMC, chaired by Alan Greenspan, have not finalized what they will do five weeks from now. Their decision will be affected by another round of GDP, employment and inflation numbers. If the FOMC opts for another 25-basis-point increase next month, it will be the fifth since June 30 and bring the federal funds target to 2.25%.

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