The Federal Reserve on Tuesday pushed a key interest rate to the highest level in 4 1/2 years while signaling that the campaign to raise interest rates to fight inflation was drawing to an end.
WASHINGTON — The Federal Reserve on Tuesday pushed a key interest rate to the highest level in 4 1/2 years while signaling that the campaign to raise interest rates to fight inflation was drawing to an end.
The action left the Fed’s target for the federal funds rate, the interest that banks charge each other, at 4.25 percent. It was the 13th consecutive quarter-point move since the Fed began raising interest rates in June 2004, when the funds rate was at a 46-year low of 1 percent.
The signal that the rate hikes were coming to an end came in a slight change in the public statement in which the Fed dropped the description of current rate hikes as accommodative.
Even with the slight language change, some analysts believe that the Fed will raise rates at least one more time by a quarter-point at Alan Greenspan’s last meeting as Fed chairman on Jan. 31.
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The quarter-point rate hike on Tuesday had been widely expected by financial markets.
Commercial banks were expected to quickly follow with increases in their prime lending rate. This rate, the benchmark for millions of consumer and business loans, was expected to rise from 7 percent to 7.25 percent, which would be the highest level in 4 1/2 years.
Throughout the Fed’s 18 months of rate hikes it has always before this meeting described the level of interest rates as “accommodative,” meaning that they were still low enough to spur economic activity.
By dropping the word accommodative, the Fed acknowledged that it has now pushed rates up to a level where they are in a neutral range and not spurring increased activity.
The Fed said Tuesday that “some further measured policy firming is likely to be needed.” The quarter-point rate hike had been widely expected by financial markets.