WASHINGTON (CBS.MW) - The Federal Reserve raised its key overnight interest rate by a quarter percentage point Tuesday and signaled that more rate hikes are likely in coming months
The Fed raised its Fed funds rate to 1.75 percent from 1.50 percent, the third straight meeting with a quarter-point rate hike.
Federal Reserve chairman Alan Greenspan and his colleagues said that even with these three rate hikes, monetary policy remains accommodative.
"With underlying inflation expected to be relatively low, the FOMC believes that policy accommodation can be removed at a pace that is likely to be measured," the statement said.
The Fed was more upbeat about the economy than the previous statement in August.
The statement said the economy "appears to have regained some traction, and labor market conditions have improved modestly."
The Fed noted that despite the rise in energy prices, "inflation and inflation expectations have eased in recent months." Read FOMC statement.
The vote to raise the federal funds rate by a quarter-point was unanimous. The Fed also raised the discount rate by a quarter percentage point to 2.75 percent.
Financial markets had fully priced in a quarter-points hike.
Treasuries were moderately lower after the FOMC statement. The dollar rose against the yen and pared its losses versus the euro. Stocks spiked higher in reaction to the positive Fed comments on the economy.
The fed funds rate is the rate banks charge each other for overnight loans to meet the Fed's reserve requirements. The Fed targets the rate by buying and selling Treasurys through its Open Market Desk.
This is the last FOMC meeting before the presidential election on Nov. 2.
The market expects the FOMC to raise rates one more time to 2.0 percent at its next meeting on Nov. 10 before skipping a rate hike in December.
The central bankers have signaled they would raise rates at a slow and steady pace until rates get to a neutral level. Some Fed officials have put that level in the range of 4.0 percent.
There is a debate among economists over whether the economy will be strong enough for the Fed to continue to hike rates next year. Read economic preview.
Despite the Fed rate hikes, 10-year Treasury bond yields have dropped over the summer. Analysts said the market has a darker view than the Fed of the economy's prospects. See full story. |
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