Signs Signal Fed Funds Rate Hike Likely This Month

By John S. McClenahen Federal Open Market Committee (FOMC) Chairman Alan Greenspan had an opportunity Sept. 8 to dissuade financial markets of the nation that the panel would raise the federal funds target rate, now at 1.5%, when it next meets on Sept. 21. He did not seize the opportunity. Indeed, Greenspan told the House Budget Committee that the U.S. economy, after hitting a "soft patch" in late spring, seems to be expanding again. Among the signs he cited: an increase in recent months in U.S. manufacturing output -- although, he said, part of the rise "likely" reflects some inventory adjustment. All this continues to be consistent with the FOMC's announced "measured" response to changing U.S. economic conditions. Economists generally expect the FOMC to approve a 25-basis-point increase in the federal funds target rate, bringing the interest rate banks charge each other for overnight loans to 1.75%.

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