Rising inflation prompted the 12th successive increase in United States interest rates on Tuesday night, with a warning from the Federal Reserve that further rises in borrowing costs for the world’s biggest economy are in the pipeline.
A week after Ben Bernanke was named to succeed Alan Greenspan as chairman of the Federal Reserve, America’s central bank made clear that there was to be no change in policy, as it raised interest rates by a quarter-point, as expected, to 4%.
The Fed statement accompanying the latest upward move in rates said that there would only be a temporary effect on the US economy from the storm damage caused by Hurricane Katrina, adding that the boost to growth provided by low interest rates after the collapse of the dot.com bubble would continue to be removed at a ”measured” pace.
Although the central bank stressed that higher energy bills and other cost increases had the potential to push up inflation, it remained confident that ”appropriate monetary action” would guarantee a continuation of low-inflationary growth.
Tuesday’s night’s move had been anticipated by the majority of Fed watchers. It marks the 12th quarter-point increase since the Fed began raising rates from a 46-year low of 1% in June last year at what it describes as a ”measured pace”.
US inflation is running at a 14-year high of 4,7%, largely due to record rises in the price of oil following Hurricane Katrina. High energy costs put upward pressure on inflation, although US light crude has since fallen to under $60 a barrel.
The US has also seen record rises in house prices of about 14% a year, making the Fed wary of leaving rates on hold. Despite blows to consumer confidence from increased petrol prices following Hurricanes Katrina, Rita and Wilma, figures out last week showed the US economy grew at a faster-than-expected rate of 3,8% year on year in the third quarter.
Analysts said the Fed was likely to raise rates by a further quarter-point at its pre-Christmas meeting with another rise likely in January, so borrowing costs may have hit 4,5% when Bernanke takes over.
Bernanke, chief economic adviser to President George Bush, is believed unlikely to change significantly the direction of the Fed, although he is keener on the inflation targeting approach pursued by the Bank of England than is Greenspan. The new Fed chairperson says his priority will be ”to maintain continuity with the policies and policy strategies established during the Greenspan years”. – Guardian Unlimited Â