FOMC Raises Federal Funds Target To 3%

As expected, Chairman Alan Greenspan and the 11 other voting members of the Federal Open Market Committee (FOMC) raised the target for the influential federal funds rate to 3% on May 3. The target for the rate, which is the interest banks charge each other on overnight loans, had been 2.75%. It was the panel's eighth consecutive increase since June 2004.

As it has previously done, the FOMC again signaled its intention to continue raising rates "at a pace that is likely to be measured." That suggests a target rate rise of 25 basis points at each of this summer's meetings: a two-day session at the end of June and a one-day meeting on August 9.

"Recent data suggest that the solid pace of spending growth has slowed somewhat, partly in response to the earlier increases in energy prices," the FOMC said in a statement following its Tuesday meeting. "Labor market conditions, however, apparently continue to improve gradually. Pressures on inflation have picked up in recent months, and pricing power is more evident," it added.

The FOMC also gave itself an out to raise or lower the federal funds target rate if economic conditions change, saying the panel "will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability."

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