U.S. Raises Key Interest Rate For First Time In Four Years

By Agence France-Presse U.S. Federal Reserve policymakers June 30 raised interest rates for the first time in four years to pre-empt inflation in an expanding economy that is churning out new jobs. The Federal Open Market Committee (FOMC) voted unanimously to raise its target for the federal funds rate, which commercial banks charge each other overnight, to 1.25% from a 1958 low of 1%. It was the first in a series of moves expected to gradually return the key rate to normalcy -- about 4% at the current inflation rate -- by the end of 2005. With inflation low except for some apparently transitory hotspots, Federal Reserve chairman Alan Greenspan and his colleagues said they expected to move at a "measured" pace. But the policymakers vowed to do whatever is needed if inflation rears unexpectedly. After a year of no change in rates and three years of cuts, investors sweated about the pace of future increases. "In 2005, the Federal Reserve could boost the interest rate at a faster rate if above trend growth chews up excess capacity, raising the core inflation rate," Wells Fargo Bank chief economist Sung Won Sohn warned. Federal Reserve members also raised the discount rate, at which the central bank loans to commercial banks overnight, by the same quarter-point margin to 2.25%. Copyright Agence France-Presse, 2004