When Will The Fed Raise U.S. Interest Rates?

By John S. McClenahen The short-term focus is on when -- or if -- Chairman Alan Greenspan and the other members of the influential Federal Open Market Committee (FOMC) will again cut U.S. short-term interest rates. The influential federal funds rate remains at 1.75%. Presumably as the U.S. economy gains some momentum in 2003, the FOMC will act, however, to help keep inflation from running away. In its current economic forecast, DRI-WEFA Inc. is assuming that the FOMC won't act until the end of next June. "Although GDP growth next year is projected to be 3%, we believe the 6% unemployment rate will deter the Federal Reserve from raising interest rates until they are sure unemployment has peaked," says the Lexington, Mass.-based economic consulting firm. "Although consumer price inflation accelerates to near 3% next year, we believe the Fed will tolerate this higher inflation rate, rather than risk cutting off the recovery." DRI-WEFA forecasts a 1.7% rise in CPI for this year.

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