The U.S. central bank, the Federal Reserve, Tuesday continued its policy of gradual but steady increases in short-term interest rates, taking the overnight federal funds rate to 4.5 percent.
It was the final Fed policy-making meeting presided over by Alan Greenspan, the respected dean of global central bankers who turns 80 next month. As the outcome of the meeting was announced Tuesday afternoon, the Senate voted to confirm Mr. Greenspan's successor, economist and presidential advisor Ben Bernanke, 52, who will take office on Wednesday.
The rate increase was expected and continues a nearly two-year long process of restoring short-term rates to higher, market determined levels. There have 14 consecutive quarter point increases in rates since June 2004. Higher rates translate into higher fees on credit card balances as well as higher payments on most adjustable rate home mortgages. The Federal Reserve says higher rates are needed to combat the inflationary pressures associated with the doubling of oil prices over the past two years.
However, a growing chorus of economists and lawmakers is saying the Fed tightening is going too far and could choke off economic growth.
"I regretted that the federal open market committee today continued to take interest rates up," said Paul Sarbanes, the ranking democrat on the Senate banking committee. "You know, growth in the fourth quarter of last year dropped to just about one percent, the worst since 2002 in terms of quarterly growth in the economy. So, we're concerned about that."
In its statement Tuesday, the central bank said further rate increases may be needed. Some analysts say that wording suggests that the tightening period is coming to an end, since the statement last month said further rate increases were likely.