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| The Fed is still talking about "moderate"
interest rate increases |
US interest rates have continued to climb as the Federal Reserve raised
its benchmark borrowing cost by a quarter of a percentage point to 2.75%.
The increase is the seventh time the Fed has tweaked rates since last
June.
Despite saying that inflationary pressures had increased, the Fed said
it would keep its "measured" pace of interest rate increases.
Analysts had voiced concerns that price pressures may prompt the Fed to
take a more aggressive stance on future hikes.
"The statement was a big surprise," said Alan Ruskin, director of
research at 4Cast in New York. "There were a couple of clears signs that
the Fed is more worried about inflation and inflation pressure."
Fed watchers have been poring over the text of the central bank's
statement, looking for clues as to the state of the economy and future
policy.
They point to the stronger language about the inflation risks and say
that the Fed is preparing the market for further interest rate increases.
In its statement the Federal Open Market Committee, which sets US
interest rates, said that "though longer-term inflation expectations
remain well-contained, pressures on inflation have picked up in recent
months and pricing power is more evident".
"The rise in energy prices, however, has not notably fed through to
core consumer prices," it added.
Analysts have said that the Fed's neutral zone, where it can keep the
economy growing without speeding inflation, is somewhere between 3% and
5%.
The US, as with many countries across the globe, has been faced with
surging commodity and crude oil prices at a time when its economy has been
emerging from slowdown.
Low borrowing costs had been a key aid to that economic recovery and
the Fed was forced to slash its interest rate to 1%, its lowest level
since the late 1950s.
Since those low levels, the economy has started to create jobs and is
showing signs, albeit sporadically, of being robust.
"They left in the 'measured' word," said Brian Reynolds, an strategist
at MS Howells & Co. "However, the language was a little tougher. They
talked a little more about inflation pressures."
"That is a disappointment to those who thought they might ease the pace
of tightening."
(China Daily) | 
Updated: 2005-03-23 08:49