Will FOMC Raise Interest Rates Again In February?

By John S. McClenahen In the wake of the Federal Open Market Committee's (FOMC) Dec. 14 decision to raise the influential federal funds target rate by 25 basis points to 2.25%, the question is will Chairman Alan Greenspan and his eleven FOMC voting colleagues do it again at their next scheduled meeting on Feb. 1-2, 2005? Unless U.S. economic conditions change dramatically between now and then, the FOMC is expected to raise the federal funds target another 25 basis points to 2.5%. The federal funds rate is the interest that banks charge each other on overnight loans. In announcing its Dec. 14 decision, the FOMC noted that U.S. economic "appears to be growing at a moderate pace" despite recent rises in energy prices and that "labor market conditions continue to improve gradually." Significantly, the panel also said, "Inflation and longer-term inflation expectations remain well contained." As it did on Nov. 10, when it last raised the federal funds rate, the FOMC gave itself a little wiggle room, stating "the Committee will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability."

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