INTEREST RATES Fed keeps positive economic view

Economists expect another increase in September.
WASHINGTON (AP) -- The Federal Reserve, anticipating an acceleration of economic growth after the current slow patch, strongly hinted it doesn't plan to take a breather in its campaign to push interest rates higher to keep inflation under control.
Economists had believed the Fed might pause in its credit tightening in September. But now they are saying they fully expect a third rate increase to come at the Fed's meeting Sept. 21.
The central bank raised rates Tuesday for the second time this year, pushing its target for the federal funds rate up from 1.25 percent to 1.5 percent.
That move was immediately followed by a quarter-point increase in commercial banks' prime lending rate, the benchmark for millions of consumer and business loans, which climbed from 4.25 percent to 4.5 percent.
High expectations
In a signal of its future intentions, the Fed retained language it had used for its first quarter-point rate increase June 30, saying it expected to proceed with future increases "at a pace that is likely to be measured."
The Fed acknowledged the economy had slowed in recent months, commenting, "This softness likely owes importantly to the substantial rise in energy prices."
Still, the Fed said, "The economy nevertheless appears poised to resume a stronger pace of expansion going forward."
"This was a very confident statement that they released," said Jeff Kleintop, chief investment strategist for PNC Advisors in Philadelphia. "They brushed off the impact of energy prices and said the economy is poised to resume a solid pace of expansion."
While an incumbent running for re-election would normally not be happy to see the Fed raising interest rates in the heat of a campaign, analysts said President Bush can take comfort from the Fed's optimistic assessment.
Analysts said the Fed sought to project a sense of confidence that the economic slowdown, which was most dramatically represented by last week's disappointing jobs report, was not a threat to derail the current expansion.
Campaign perspectives
Bush, who is seeking to avoid his father's fate of being one-term president because of a weak economy, is insisting the economy has turned the corner, but the slump in various economic statistics in recent weeks has cast doubts on that contention. Democratic challenger John Kerry has said the economic turn was really a "U-turn."
The government reported Friday that 32,000 jobs were created in July, the poorest showing this year and far below the 200,000-plus jobs analysts had been expecting.
After that weak report, many analysts believed the Fed would go ahead with an expected quarter-point rate hike this week but might signal it was prepared to pause in September if the economy had not shown signs of a rebound by then.
After Tuesday's comments from the Fed, though, many analysts predicted the central bank not only will raise rates Sept. 21, the last before the Nov. 2 election, but also at its Nov. 10 and Dec. 14 meetings.