FOMC Boosts Funds Rate As Expected

It was no surprise when the Federal Open Market Committee (FOMC) raised the target federal funds rate to 3.5% from 3.25% on August 9. The 25-basis-point increase was widely anticipated by economists, manufacturers and other businesses.

But will the FOMC continue gradually to raise the target rate, the interest banks charge each other on overnight loans, at its three remaining meetings this year? Chances are that Chairman Alan Greenspan and his colleagues will do exactly that. In a statement following Tuesday's increase, the panel noted "pressures on inflation have stayed elevated" and reiterated that the target rate can be raised "at a pace that is likely to be measured."

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