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US Short-Term Interest Rates Rise Again

The Federal Reserve, the U.S. central bank, Tuesday raised short-term interest rates for the 13th consecutive time since June 2004. The rate hike brings short-term rates up to 4.25 percent.

Short-term rates in the United States have been raised by 0.25 percent to 4.25 percent. That is their highest level since April 2001. Higher short-term rates impact businesses and consumers by making loans more expensive.

Stock prices in New York rallied on the news, mainly because many analysts believe the central bank's current cycle of raising rates is nearing an end. Bill Gross, a California-based expert on interest rates, anticipates only one more rate increase.

"I think the Fed is pointed at housing," he said. "I think housing in the next month or two will exhibit extreme weakness and the Fed will stop."

The tightening cycle follows a period of interest cuts from 2001 to 2003. Then the central bank sought to stimulate an economy weakened by recession and the uncertainty that accompanied the September 11, 2001, terrorist attacks.

Since 2004 the Fed has sought to bring short-term rates into a more neutral position. Former Federal Reserve governor Alan Blinder, a professor at Princeton University, says the central bank will continue to tighten credit even after Ben Bernanke replaces long-serving Fed Chairman Alan Greenspan at the end of next month.

"My guess is that there will be another rate hike and only a tweaking of the language [from the Fed when the rate decision is announced]," he said. "Because this says to me that the tightening continues into the Bernanke era. The operational question was whether Greenspan would tie it up on January 31 [the next interest rate meeting]. It doesn't look that way to me now."

In its statement, the central bank repeated its promise to push rates up further if that is needed to keep inflation under control. Inflationary pressures accelerated after the sharp rise in oil and gas prices over the past year.