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03/27-03/28 FOMC Interest Rate Change
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WASHINGTON (Reuters) - In their first meeting under new chief Ben Bernanke, Federal Reserve officials lifted a key U.S. interest rate on Tuesday a 15th straight time and said further moves may be needed to keep inflation at bay.
As widely expected, the U.S. central bank's rate-setting Federal Open Market Committee voted unanimously to raise the benchmark federal funds rate target a quarter percentage point to 4.75 percent, the highest level since April 2001.
In a statement announcing its action, the Fed repeated further rate rises may be needed, suggesting it was comfortable with financial market expectations for rates climbing to 5 percent in coming months.
"Economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace," the Fed said in a statement explaining the outcome of the two-day meeting that started on Monday.
It added that higher energy and commodity prices so far appeared to be having only a modest impact on core prices and inflation expectations were still contained.
"Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures," the Fed said, repeating wording from its January 31 statement.
The dollar rose in the wake of the decision while bond and stock prices fell on the prospect of more rate rises ahead.
The U.S. economy appears to have bounced back smartly after growing at a sluggish 1.6 percent annual rate in the final three months of 2005. Some forecasters think first-quarter growth in U.S. gross domestic product could top a rapid 5 percent pace.
Fed officials, however, expect the pace of economic growth to moderate as the year progresses, helping to keep the risk of higher inflation under wraps.
Still, with the unemployment rate at a historically low 4.8 percent and the amount of unused industrial capacity dwindling, the central bank is not ready to drop its inflation offensive.
"The committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance," the central bank said, using identical language to the statement issued after its last meeting
As widely expected, the U.S. central bank's rate-setting Federal Open Market Committee voted unanimously to raise the benchmark federal funds rate target a quarter percentage point to 4.75 percent, the highest level since April 2001.
In a statement announcing its action, the Fed repeated further rate rises may be needed, suggesting it was comfortable with financial market expectations for rates climbing to 5 percent in coming months.
"Economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace," the Fed said in a statement explaining the outcome of the two-day meeting that started on Monday.
It added that higher energy and commodity prices so far appeared to be having only a modest impact on core prices and inflation expectations were still contained.
"Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures," the Fed said, repeating wording from its January 31 statement.
The dollar rose in the wake of the decision while bond and stock prices fell on the prospect of more rate rises ahead.
The U.S. economy appears to have bounced back smartly after growing at a sluggish 1.6 percent annual rate in the final three months of 2005. Some forecasters think first-quarter growth in U.S. gross domestic product could top a rapid 5 percent pace.
Fed officials, however, expect the pace of economic growth to moderate as the year progresses, helping to keep the risk of higher inflation under wraps.
Still, with the unemployment rate at a historically low 4.8 percent and the amount of unused industrial capacity dwindling, the central bank is not ready to drop its inflation offensive.
"The committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance," the central bank said, using identical language to the statement issued after its last meeting
