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US Central Bank Boosts Interest Rates Again


The American central bank, the Federal Reserve, Tuesday raised short-term interest rates for the fifth time in six months. Even with the quarter point increase short-term rates are a still-very-low 2.25 percent.

Financial markets anticipated the increase and in New York an advance in stock prices accelerated when the news was announced. U.S. equity prices, measured by the Standard and Poor's Index, are at their highest level in three years. In its statement, the Federal Reserve said improving economic conditions meant that further, modest rate increases are likely. Rates are being restored to more normal levels closer to the rate of inflation after having been at their lowest levels in 46 years.

The central bank says output in the U.S. economy is growing at a moderate pace and that labor market conditions are improving gradually. It says inflation, even with higher gasoline prices, is being held in check.

Bill Gross, who manages the world's biggest mutual fund investing in fixed income securities, expects the Federal Reserve will move more slowly in raising rates during the first half of 2005.

"I think there are a number of structural head winds that the Fed themselves have talked about. They include the waning of budget stimulus and tax cuts, the fact that oil prices have gone up, the fact that the dollar has gone down," he noted.

Currently, the U.S. economy is growing at a four-percent pace and is in the third year of an economic recovery. Inflation has been creeping up to a current 2.5 percent annual rate. The economy continues to create jobs but at a pace below what most economists had predicted.

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