WASHINGTON (Nov. 1, 2005) — For the 12th straight time, the Federal Reserve has raised interest rates, again by a quarter percentage point.&Copy;The Federal Open Market Committee (FOMC) voted unanimously to raise the benchmark federal funds target rate by 25 basis points to 4 percent, which puts rates at their highest level since June 2001.
Elevated energy prices and hurricane-related disruptions in economic activity have temporarily depressed output and employment, the Fed said in explaining its move. “However, monetary policy accommodation, coupled with robust underlying growth in productivity, is providing ongoing support to economic activity that will likely be augmented by planned rebuilding in the hurricane-affected areas.”
While the cumulative rise in energy and other costs “have the potential to add to inflation pressures,” the committee said core inflation has been relatively low in recent months and “longer-term inflation expectations remain contained.”
However, the committee added that it will respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.
Some economists have said they expect the FOMC to continue hiking rates by a quarter percentage point at the committee's two remaining meetings before Fed chief Alan Greenspan retires on Jan. 31.
In a related action, the Fed's board of governors unanimously approved a 25-basis point increase in the discount rate to 5 percent.