The Federal Reserve on Thursday raised a key interest
rate for the 17th consecutive time and signaled that further rate hikes may
still be needed to fight inflation.
The central bank boosted the federal funds rate, the interest that banks
charge each other, by a quarter-point to 5.25 percent, the highest level in more
than five years. When the Fed started its credit tightening campaign two years
ago, the funds rate stood at a 46-year low of 1 percent.
In the statement explaining the decision, Fed Chairman Ben Bernanke and his
colleagues said that "some further policy firming may yet be needed to address
inflation risks."
The committee said that "some inflation risks remain" even though it was
likely that a moderation in economic grwoth "should help to limit inflation
pressures over time."
The Fed's rate hikes have raised the borrowing costs for millions of
Americans on everything from home mortgages to auto loans.
Commercial banks were expected to quickly follow the Fed announcement by
raisng their benchmark prime rate by a quarter-point to a five-year high of 8.25
percent.
The latest rate hike had been widely expected given comments Bernanke made
on June 5 in which he called a rise in the rate of inflation an "unwelcome"
development, a comment that contributed to a one-day 199-point drop in the Dow
Jones industrial average.
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