The Federal Reserve, beginning a new era under Chairman Ben S. Bernanke, raised the main U.S. interest rate to 4.75 percent and held out the prospect of further increases.
The quarter-point move is the 15th in a row, the longest stretch of increases in more than 25 years. Fed policy makers kept their assessment that energy prices and labor costs pose a risk to inflation.
“Some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance,” the rate-setting Federal Open Market Committee said in its statement after meeting today in Washington. “The run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation.”
The FOMC Statement can be found here:
The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4-3/4 percent.
The slowing of the growth of real GDP in the fourth quarter of 2005 seems largely to have reflected temporary or special factors. Economic growth has rebounded strongly in the current quarter but appears likely to moderate to a more sustainable pace. As yet, the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation, ongoing productivity gains have helped to hold the growth of unit labor costs in check, and inflation expectations remain contained. Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures.
The Committee judges that some further policy firming may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance. In any event, the Committee will respond to changes in economic prospects as needed to foster these objectives.
The vote was unanimous.