Tuesday, March 22, 2005
Policy-makers are trying to keep inflation reined in.
WASHINGTON (AP) -- Federal Reserve policy-makers, wanting to prevent a broader outbreak of inflation as oil prices surge, are likely to keep pushing short-term interest rates higher.
The Fed is poised to boost its key federal funds rate by one-quarter percentage point to 2.75 percent today. That would mark the seventh increase of that size since June 2004.
Increase expected
While economists consider today's expected increase a foregone conclusion, there's intense interest -- and mixed opinions -- on what signals, if any, Fed policy-makers may offer about the future course of rates.
The Fed, after each meeting, issues a brief statement that usually provides an explanation of a given interest rate decision as well as some thoughts on the economy. Fed watchers examine the statement for hints about future monetary policy.
"There is a lot more suspense in the tone of the statement. We are all wondering what the Fed is and isn't seeing in the economy and how that will affect interest rate policy through the end of the year," said Carl Tannenbaum, chief economist at LaSalle Bank.
Especially of interest to economists is whether the Fed will stick with its current stance that future rate increases will be gradual.
To be sure, how economic activity and inflation unfold in the months ahead will figure prominently into whether the Fed speeds up or slows down its rate-raising campaign, analysts said.
Some economists predict the Fed will follow today's expected rate increase with quarter-point boosts at both the May and June meetings, which would leave the funds rate at 3.25 percent. Others, however, believe the Fed will keep lifting the funds rate through much of this year, pushing the rate up to around 4 percent.
The funds rate is the interest banks charge each other on overnight loans and is the Fed's main tool for influencing the economy.
Energy prices key
The economy, which grew at a solid 3.8 percent annual rate in the final quarter of 2004, is expected to do as well or better in the current quarter, analysts say. But high energy prices may pose a risk to these projections as well as to the nation's gradually improving employment climate, they warned.
Employers added 262,000 jobs in February, the most since October. Economists are hopeful payrolls will post sizable gains in the coming months, but that may not occur if energy prices continue to surge, they said.
White House spokesman Scott McClellan said high energy prices underscore the need for Congress to approve a comprehensive energy plan, as advocated by President Bush. "High energy prices are a drag on our growing economy and the president believes it's time for Congress to act," McClellan said.
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