Fed Raises Rates As Greenspan Exits
Greenspan To Be Replaced By Ben Bernanke
POSTED: Tuesday, January 31, 2006
UPDATED: 2:29 pm EST January 31,
2006
WASHINGTON -- The Federal Reserve boosted short-term interest rates on Tuesday -- the 14th increase since June 2004.
The Fed added one-quarter of a percentage point to a short-term interest known as the federal funds rate.
That puts the funds rate, the interest banks charge each other on overnight loans, at 4.5 percent.
In response, commercial banks were expected to raise their prime lending rate -- for certain credit cards, home equity lines of credit and other loans -- by a corresponding amount to 7.5 percent.
In making the announcement, the Fed modified its statement to remove the word "measured," which it had been using to signal further gradual quarter-point moves.
Instead, it said "some further policy firming may be needed" to keep inflation under control.
Tuesday's meeting was the last with Alan Greenspan as Fed chairman.
Greenspan, 79, is the second-longest serving chief of the nation's central bank. His retirement comes after more than 18 years on the job. Greenspan is expected to set up a consulting firm, make speeches and perhaps write a book.
Ben Bernanke has been chosen by President George W. Bush to take Greenspan's place.
Many analysts believe Tuesday's rate hike will not be the last.
They expect that Bernanke, to show his inflation-fighting resolve, will get the Fed to push rates up one more time at a March 28 meeting, the first at which he will be presiding.
The goal of the central bank has been to push rates up to slow the economy and keep inflation in check.
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