FOMC Signals Rising Interest Rates

By John S. McClenahen The Federal Open Market Committee (FOMC) will begin raising the influential federal funds short-term interest rate. The only question is when. August has been mentioned. But June is a possibility for what is likely to be a 25-basis-point increase to 1.25% from the 1% that has prevailed since June 2003. Of course, when it released a statement following its May 4 meeting, the FMOC did not come right out and say when it would move and by how much. Rather it cloaked the future in its trademark obscure phrasing: "At this juncture, with inflation low and resource use slack, the Committee believes that policy accommodation can be removed at a pace that is likely to be measured." In other words, the federal funds rate, which affects other short-term interest rates and long-term rates as well, will likely be raised gradually.

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