Posted on: Thursday, February 3, 2005
Fed boosts key rate to 2.5%
By Nell Henderson
Washington Post
WASHINGTON — Federal Reserve officials raised a key short-term interest rate yesterday and indicated they will continue lifting rates gradually this year to keep inflation in check as the economy grows.
The federal funds rate, the interest rate charged between banks on overnight loans, influences many other rates on business and personal loans.
Major banks are expected to follow by raising their prime rate for business customers by a similar quarter-point, to 5.5 percent. Many consumer rates tied to the prime, such as on many credit-cards and home-equity loans, may rise as well.
In Hawai'i, Central Pacific Financial Corp., the parent of Central Pacific Bank and City Bank, said it raised its prime rate to 5.5 percent effective yesterday. First Hawaiian Bank, American Savings Bank and Bank of Hawaii said they would match the increase today.
At 2.5 percent, the federal funds rate is still so low it is still stimulating economic growth, the committee said after the meeting in a statement nearly identical to that issued after its previous meeting in December. With the economy now strong enough that it doesn't need that extra push, the Fed wants to raise the rate to avoid fueling inflationary pressures.
But with inflation low, Fed officials think they probably will keep raising the federal funds rate at a "measured" pace, they said in the statement. That means they likely will keep lifting the rate in small steps, of a quarter-point at a time, spread over many months.
Members of the Fed's top policy-making committee agreed unanimously to nudge the benchmark federal funds interest rate up to 2.5 percent from 2.25 percent. The action marked the sixth increase of a quarter-percentage point since June, when the group started moving the rate up from 1 percent.
