Fed Raises Interest Rate a Quarter Point

Unsurprisingly the Fed raised interest rates a quarter point. This is rather unsurprising news given that the economy is in the middle of an expansion.

With the economy squarely in expansion mode, many economists expect the central bank to continue gradually raising rates this year to snuff out any incipient inflation. After aggressively cutting rates from 2001 through 2003, central bankers are trying to move rates back to a so-called neutral stance where the funds rate is neither stimulating growth nor holding the economy back. There is debate in economic circles about where the neutral level is. However, many economists believe it is somewhere between 3.5 percent and 4.5 percent for the federal funds rate.

The idea though that the Fed will raise the interest rate at each of the next 8 meetings is a bit unlikely, IMO. I think the Fed will look at the economy and try to gauge the interest rates based on how the economy is (perceived to be) doing.

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Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.