Fed Funds Rate Hike To 2% Foreseen

By John S. McClenahen When Chairman Alan Greenspan and the 11 other voting members of the Federal Open Market Committee (FOMC) meet on Nov. 10 they are widely expected to raise the target for influential federal funds rate to 2% from its current 1.75%. "We continue to anticipate that the federal funds rate will be raised by another 25 basis points to 2%, with the accompanying [FOMC] statement still describing policy as 'accommodative,'" says Maury Harris, chief U.S. economist at UBS Securities LLC. "Monetary policy instead of fiscal policy will be playing a larger near-term role in the financial markets," he adds. However, Kathleen Bostjancic, senior economist at Merrill Lynch & Co., figures that this week's expected increase in the federal funds target rate, the interest that banks charge each other on overnight loans, will be it for awhile. A "low inflationary backdrop along with our forecast for slowing economic growth in 2005 should push the Fed to the sidelines for awhile and keep the funds rate at 2% . . . ," she says.

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