Fed Mulls Interest Rate Hike

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Federal Reserve Chairman Ben Bernanke and the Federal Open Market Committee seems poised to boost interest rates, wanting to make sure high energy prices don’t spark a broader bout of inflation. The group, which sets interest rate policy in the United States, convenes for a two-day session starting Wednesday afternoon and plan to study the economy’s latest vital signs – including the outlook for inflation, the Associate Press reports.

Inflation has been rising even as the economy is slowing, putting the Fed in a tricky situation. Fed policymakers say they want to push rates up enough to quell inflation but not so much as to hurt the economy.

Earlier this month, Bernanke signaled that a key interest rate controlled by the Fed will go up again on Thursday. Most economists are predicting another quarter-point; bumping up to the federal funds rate to 5.25 percent, which would be the highest rate in more than five years. That would mark the 17th increase of that size since the Fed began to tighten credit in June 2004.

The funds rate is the interest banks charge each other on overnight loans and the Fed’s main tool to influence economic activity. In response to an increase, commercial banks would boost their prime lending rate for certain credit cards, home equity and other loans.

Some economists believe a bolder, half-point increase might be in store.


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