FOMC Figures Inflation Is The Bigger Worry

By deciding on September 20 to increase the federal funds target rate 25 basis points to 3.75%, the Federal Open Market Committee (FOMC) signaled it was more concerned about rising U.S. inflation than slowing growth.

That's not, of course, exactly how the panel put it.

In a statement, the committee noted damage related to Hurricane Katrina had increased uncertainty about U.S. economic performance, with spending, production and employment all likely to take some hits. At the same time, "higher energy and other costs have the potential to add to inflation pressures," the committed also acknowledged.

In the end, the FOMC decided to maintain a balance between growth and price stability by raising the funds target rate and, significantly, said it could continue to raise interest rates at a "measured" pace.

The decision was not unanimous, however. Among the 10 members voting, Mark W. Olson, a governor of the Federal Reserve System, opted to hold the federal funds target rate at 3.5%.

The federal finds target rate is the interest banks charge each other on overnight loans.

The next scheduled FOMC meeting is November 1.

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