FOMC Raises Fed Funds Rate to 4.5%

As expected, during the final meeting chaired by Alan Greenspan the Federal Open Market Committee (FOMC) on Jan. 31 raised the federal funds target rate by 25 basis points to 4.5%. It was the fourteenth increase since June 2004 in the influential rate, the interest banks charge each other on overnight loans.

Significantly, the FOMC stated further tightening of the U.S. monetary supply might be necessary.

Otherwise, the FOMC, the interest-rate policy panel of the Federal Reserve, judged that the U.S. economy "appears solid," despite unevenness in recent economic data. "Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained," it said. However, "possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures," the FOMC added.

Ben Bernanke is expected to be sworn in on Feb. 1 as Greenspan's successor as Fed chairman.

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