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US Interest Rates Boosted for Third Straight Month - 2004-09-21

The U.S. central bank, the Federal Reserve, Tuesday raised short term interest rates for the third time in as many months. The central bank believes the economy has absorbed the sharp rise in energy prices that occurred earlier this year.

The rate increase comes as no surprise. The short-term fed funds rate, used for interbank transfers, now stands at a still-low 1.75 percent. This is the third one-quarter point rise in as many months. In an effort to spur economic growth by making the cost of credit cheaper, the Federal Reserve had cut rates 13 times in the period between January 2001 to mid-2003.

Larry Kudlow, a commentator on CNBC television, believes the central bank should now take a pause from raising rates in order to see over the next few weeks if the economy still grows at a fast pace.

"I think the Fed statement is basically correct," he said. "We have very low, very benign inflation and solid economic growth. My only disagreement is that I see no reason for the Fed to fine-tune this. If it ain't broke don't fix it."

The Federal Reserve policy-making committee does not meet in October but will convene in early November.

Financial markets had expected a rate increase. The central bank had indicated some months back that because the economy was now growing at a sustained pace it would move in a measured, gradual manner to increase interest rates. Typically interest rates exceed the rate of inflation, a situation at variance with current U.S. economic performance, where interest rates are still considerably below the 2.5 percent rate of price increases.