The U.S. central bank, the Federal Reserve, Thursday, as expected, raised short-term interest rates for the ninth consecutive time in the past 12 months. The monetary authority cites concern about inflationary pressure in the economy.

It is the ninth consecutive quarter point rise in the fed funds rate - the interest banks charge one another for overnight loans. The policy making Open Market Committee voted unanimously to raise the rate to three and one quarter percent, its highest level since September 2001. A statement suggested that the central bank will continue to raise short-term rates.

Bill Gross, who heads the Pimco bond trading firm in California, says the Federal Reserve is concerned that, while the short-term rate it controls is rising, market determined longer-term rates are slightly below where they were one year ago, when the monetary tightening began. Mr. Gross believes long-term rates have held steady because of a constant influx of money from Asian central banks.

"It is really the Asians who are in control of those two, five and 10-year yields which are historically low and artificially low," he said. "But I think the Fed does have to be worried because the short rate [fed funds] that is their primary weapon, aside from moral suasion and regulatory control, the short rate is a very blunt instrument."

Mr. Gross spoke on CNBC television. Asian central banks are huge holders of dollars accumulated because of the giant U.S. trade deficit with that part of the world.

Alan Greenspan
Alan Greenspan, the long-serving Federal Reserve chairman who is retiring next year, is known to be concerned about the inflationary impact of the sharp rise in oil prices. He and his colleagues are also worried about a perceived bubble in the housing market that is linked to mortgage interest rates being at or near their lowest levels in 40 years.