Fed Raises Rate To Highest Level In Four Years

Federal Reserve policy-makers raised the benchmark interest rate for the 11th straight time and signaled they may do so again, saying the economy faces only a “near-term'” setback after Hurricane Katrina.The Fed raised the overnight bank lending rate a quarter point to 3.75%, the highest in four years, after meeting yesterday in Washington. Fed Governor Mark Olson voted against his nine colleagues in favor of holding the rate steady, his only dissent ever against a rate move and the first since June 2003.“Widespread devastation in the Gulf region, the associated dislocation of economic activity, and the boost to energy prices imply that spending, production and employment will be set back in the near term,” the Fed’s statement said. “It is the committee’s view that they do not pose a more persistent threat.”The decision shows the Fed, in the waning months of Chairman Alan Greenspan’s term, is foremost concerned about potential inflation from energy prices. About 20% of the 111 economists in a Bloomberg News survey predicted the Fed would skip an increase yesterday because of risks the economy would slow.“The bottom line: The strategy of gradually raising interest rates is not over, and unless the economy softens materially, more quarter-point hikes can be expected,” said Lynn Reaser, chief economist of the Investment Strategies Group at Bank of America in New York, after the decision.Stocks fell after investors said the Fed is less likely to break from raising rates, adding to concern about slowing growth. The Standard & Poor’s 500 Stock Index erased a gain and fell 9.7, or 0.8%, at 4:17 p.m.The American economy, the world’s largest, was “poised to continue growing at a good pace” before the storm, said the statement from the Federal Open Market Committee. High productivity and low interest rates will support growth, and the Fed said it still expects to raise interest rates gradually.“With underlying inflation expected to be contained, the committee believes that policy accommodation can be removed at a pace that is likely to be measured,” yesterday’s statement said. The August statement called inflation expectations “well contained.”Katrina is complicating matters for Mr. Greenspan, 79, as he puts his final touches on his 18-year career at the Fed before his non-renewable term as a governor ends January 31. Mr. Greenspan led the central bank through an era that included the longest economic expansion and two eight-month recessions.

Fed Raises Rate To Highest Level In Four Years

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