Federal Reserve raises short-term interest rates
September 21, 2004
WASHINGTON -With the economy moving ahead and the nation’s payrolls picking up a bit, Federal Reserve policy-makers boosted short-term interest rates for a third time this year – the last chance to do so before the November election six weeks away.
Fed Chairman Alan Greenspan and his Federal Open Market Committee colleagues – the group that sets interest-rate policy – increased the target for the federal funds rate from 1.50 percent to 1.75 percent. The funds rate is the interest banks charge each other on overnight loans and is the Fed’s primary tool for influencing economic activity.
Reacting to the Fed’s decision, Wells Fargo and SunTrust Bank said they were increasing the prime lending for many short-term consumer and business loans from 4.50 percent to 4.75 percent. Other commercial banks also followed suit.
The Fed, explaining its unanimous decision, said the economy – which slowed earlier this year partly because of soaring energy prices – now “appears to have regained some traction.” That echoed a comment Greenspan made to Congress earlier this month.
In another encouraging note, the Fed said, “Labor market conditions have improved modestly.” That was a better assessment than the Fed offered in August, when it said job market improvements had slowed.
“The Fed is sending a message of relative comfort with the current condition of the economy,” said Lynn Reaser, chief economist at Banc of America Capital Management. “They suggested we are pulling out of the soft patch.”
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On Wall Street, the Dow Jones industrials gained 40.04 points to close at 10,244.93.
The Fed’s rate increase came exactly six weeks from Election Day. President Bush and his Democratic rival, John Kerry, hold widely divergent views of the health of the economy and the job market.
Incumbent politicians normally are unhappy if the Fed raises interest rates close to an election. Yet, some economists said that by raising rates, the Fed could be viewed as appearing comfortable about the pace of the economy’s expansion, which could be seen as good for the Bush campaign.