Released: May 10, 2006

Rates rise again: Now what?

Source: By Nell Henderson, Washington Post

Federal Reserve officials raised a key interest rate again yesterday and signaled that they do not know whether they will need to move it still higher in coming months to prevent rapid economic growth from pushing inflation higher.

The policymakers suggested in a statement that they were keeping their options open, a message that disappointed many investors and analysts who had hoped for a clear sign that the Fed would pause in June and leave its benchmark interest rate unchanged after nearly two years of steady increases.

Stock prices fell sharply after the central bank’s top policymaking group, the Federal Open Market Committee, announced its unanimous decision and issued a statement. But then stocks rallied, dropped and then rose again as investors reacted with confusion to the first FOMC statement in two years that did not hint at the central bank’s likely next move.

“Some further policy firming may yet be needed to address inflation risks,” the committee said, raising the possibility of at least one more rate increase.

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