Fed increases interest rates

The US Federal Reserve on Wednesday raised interest rates for a sixth straight time, extending a policy of gradually lifting borrowing costs to levels high enough to ward off inflation pressures. The unanimous decision by the US central bank's policy-setting Federal Open Market Committee moves the target for the benchmark federal funds rate - which affects credit costs throughout the economy - to 2.5 percent.
In a statement issued after a two-day meeting, Fed officials retained an assessment that economic risks were balanced between slower growth and rising prices and said they thought they could keep raising rates at a "measured" pace.
The central bank's wording on the economy all but mirrored the statement it issued at its last policy meeting on December 14.
"Output appears to be growing at a moderate pace, despite the rise in energy prices and labour market conditions continue to improve gradually," the Fed said in the statement outlining its rate decision, which also increased the largely symbolic discount rate, a matching amount to 3.5 percent.
Financial markets greeted the widely expected decision with a shrug. Stocks, Treasury bonds and the dollar were largely unchanged.
The cost of loans between banks is still low by historic standards but above the 1 percent starting point for the Fed's latest rate-rise campaign.
Policy-makers began boosting rates in June, confident the economy was in a sustainable expansion more in need of higher rates to avert inflation than the stimulus of cheap credit.
With the economy now growing steadily, and price rises modest, the Fed wants to move rates to a "neutral" level that neither hinders growth nor fosters inflation. Economists see that as somewhere between 3 and 4.5 percent.
The gathering that began on Tuesday was the first of eight meetings this year and one of just two two-day sessions. The extended meetings allow officials to prepare for Fed Chairman Alan Greenspan's semi-annual congressional testimony on the economy, which generally occurs in February and July.
He will appear before a Senate panel on February 16 and a House of Representatives committee the following day.
The two-day meetings also give policy-makers a chance to discuss wider issues. At this gathering, they were scheduled to debate the merits of using a numerical target for inflation, but that discussion will probably stay under wraps until the release of the meeting minutes on February 23.
One reason behind the US central bank's drive to get rates back to higher levels is so it has a safety margin in the event it should need to cut rates in future to spur activity.