Fed raises rates by a quarter of a point

The US Federal Reserve yesterday raised interest rates by a quarter point to 2.25 per cent and signalled there had been no change in its assessment of current economic conditions.

The policy-making Federal Open Market Committee (FOMC)left the wording of its policy statement, which accompanied the announcement, virtually unchanged from its last meeting.

The Fed said monetary policy remained accommodative, output was growing at a moderate pace despite the rise in energy prices, and inflation and long-term inflation expectations remained unchanged.

The US central bank said it would continue to raise rates "at a pace that is likely to be measured", and gave no indication of an early end to quarter-point increases. Markets rose slightly after announcement of the rate rise, which had been widely expected.

The adjustment comes amid new data showing that high oil prices and retail stockpiling before the holiday season pushed the US trade deficit to a new record in October.

The trade gap widened to $55.46 billion (€116.9 billion) from $50.9 billion the previous month, according to the Commerce Department. It was more than economists had expected and boosted the tally for the first 10 months of the year to $500.5 billion, topping 2003's full-year record of $496.5 billion.

Imports of goods and services rose by 3.4 per cent in October to $153.5 billion, the fastest rate in almost two years and far outstripping a 0.6 per cent rise in exports to a record $98.1 billion.

The White House is hosting an economic summit with business leaders and economists in Washington today and tomorrow to discuss President Bush's plans for his second term, including social security and tax reform.

Business groups have told the administration that reducing the fiscal deficit should be its priority.

The FOMC also announced that it would in future release the minutes of its meetings three weeks after it meets. It used to keep the details of its deliberations secret until after the subsequent meeting.

The minutes of yesterday's meeting will be released on January 4th.

In one change in its policy statement, the committee slightly toned down its assessment of the labour market, saying that "conditions continue to improve gradually", slightly less definitive than its November statement.

The employment report, released before the FOMC statement, showed 112,000 jobs were created in November compared with 303,000 in October.

Ironing out the monthly bumps, however, employment growth has averaged 178,000 over the past three months and 185,000 since the start of the year, fast enough to take in labour market slack and to convince policymakers that employment growth has turned the corner after two disappointing years. - (Financial Times Service)