Fed Boosts Key Interest Rate for 15th Time

Here is another monkey wrench to throw into the American economy. From Yahoo News:

WASHINGTON - The Federal Reserve on Tuesday boosted a key interest rate to the highest level in five years as new Chairman Ben Bernanke followed the
Alan Greenspan inflation-fighting formula.

The action, the 15th consecutive quarter-point move, left the federal funds rate at 4.75 percent, its highest level since April 2001.

Fed officials, who were holding their first interest rate meeting under Bernanke, left the door open for further rate increases although private economists believe only one or two more rate hikes are likely.

The Fed's latest move will mean higher interest rates for both consumers and businesses. Commercial banks were expected to quickly follow the Fed's lead by raising their prime lending rate by a quarter-point to 7.75 percent. The prime is the benchmark for millions of business and consumer loans.

The Fed's goal has been to reach a neutral level for the funds rate, the point where interest rates are neither stimulating nor depressing economic growth.

Many analysts believe the Fed is very close to that level but may feel the need to push the funds rate up one more time to 5 percent from moving to the sidelines for the rest of the year.

However, other analysts who are more worried about inflation pressures said the Fed may feel the need to boost rates not only at the next meeting on May 10 but also at perhaps two more meetings after that, leaving the funds rate at 5.5 percent.

Analysts who believe the Fed will push rates higher are more worried that the surge in gasoline prices and tight labor markets will soon start showing up in increased inflation pressures.

We'll have to see what happens.