Released: June 30, 2006

Fed hints end is near for rate increases

Source: By Barbara Hagenbaugh, USA Today

Federal Reserve policymakers raised interest rates Thursday for the 17th time in two years. And in a statement that sparked the biggest stock market rally in more than a year, the Fed suggested its rate-rising campaign may be near the end, if not complete. Fed officials unanimously voted to raise their target for short-term interest rates, which influence borrowing costs across the economy, a quarter-percentage point to 5.25%, the highest level in 5½ years.

In their post-meeting statement, Fed Chairman Ben Bernanke and his colleagues said that although the economy “is moderating” from the strong pace seen earlier in the year, “some inflation risks remain” as the job market is tight and energy prices are elevated.

But, in words that grabbed investors’ attention, the Fed said “the extent and timing of any additional firming that may be needed” will depend on incoming data. That replaced a phrase from the last meeting in which Fed policymakers said “some further policy firming may yet be needed.”

That change suggests Fed officials are “firmly in a wait-and-see mode,” says Richard Yamarone, director of research at Argus Research. “They don’t know” whether they need to raise rates again.

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