``It's pretty clear that means there will be a lot of increases of 25 basis points each,'' said Robert Heller, a former Fed governor.
Stocks rose and bonds fell after the decision. The 4 percent 10-year note maturing in February 2014 fell 1/8, pushing up its yield 2 basis points to 4.5 percent. The S&P 500 index rose 2 points, or 0.2 percent, at 2:35 p.m. in New York.
Jobs and Growth
The Fed has kept the overnight bank lending rate, which influences the cost of most consumer and business loans, unchanged since last June, following a string of 13 rate cuts that began Jan. 2, 2001.
Also today, the Fed left the primary credit discount rate on loans to banks from the Fed system unchanged at 2 percent.
After the last two policy meetings, in January and March, the Open Market Committee had said it could be ``patient in removing its policy accommodation.''
That phrase was missing from today's statement. While all 97 of the economists surveyed by Bloomberg News expected the overnight rate to remain unchanged today,
there is growing sentiment among economists and investors the Fed will act in either June or August.
Price Pressures
``It's clear
short-term rates are going to go up,'' billionaire investor Warren Buffett said in an interview Saturday. The Fed has ``perhaps been a little slow in terms of moving up, because the economy has heated up considerably.''
The economy created 308,000 jobs in March, the most in four years. Consumer and business spending has been strong, with retail sales up 1.8 percent in March, the biggest increase in a year, and factory orders 4.3 percent higher.
Stronger demand is putting pressure on commodity prices. Gold and copper are up, with copper supplies falling to a seven-year low. Terrorism and supply concerns have helped boost oil prices to more than $38 a barrel, the highest in 13 years.
Companies are also beginning to charge more. ``We are seeing a definite firming of prices,'' said Frank MacInnis, chief executive of Emcor Group Inc., a construction company.
Inflation
All of that may be accelerating inflation. The personal consumption expenditures price index, a measure of inflation watched by Fed Chairman Alan Greenspan and other policy makers and tied to spending, rose at a 3.2 percent annual pace in the first quarter, the fastest in three years. Labor costs, which account for about two-thirds of the final costs of goods and services, rose 1.1 percent in the first quarter because health care costs surged.
Fed officials have pointed to weak job creation and excess production capacity as justification for keeping rates at the lowest since July 1958. In recent speeches, policy makers have made it clear conditions are changing.
``Monetary policy is now in a transition phase,'' Fed Governor Ben Bernanke said on April 23. ``That short-term interest rates must eventually be normalized is a given.''
Spending
Yet they have also said resource use remains below potential and that inflation pressures don't appear to be spreading through the economy.
Just two weeks ago Greenspan told Congress ``the protracted period of monetary accommodation has not fostered an environment in which broad-based inflation pressures appear to be building.''
