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Economy in Brief

Fed Funds Rate Increased to 3.75%
by Tom Moeller September 20, 2005

The Federal Open Market Committee increased the target rate for federal funds 25 basis points to 3.75%. The discount rate also was raised 25 basis points to 4.75%. This latest increase is the eleventh since June of 2004.

The action was generally expected, though some analysts suggested the Fed would opt for no change in rates given the economic uncertainties generated by Hurricane Katrina.

Voting against the otherwise unanimous decision was Mark W. Olson, who preferred no change in rates at this meeting.

Today's press release from the Fed indicated that "While these unfortunate developments have increased uncertainty about near-term economic performance, it is the Committee's view that they do not pose a more persistent threat."

Indicating its concern about price inflation, the FOMC statement indicated "Higher energy and other costs have the potential to add to inflation pressures. However, core inflation has been relatively low in recent months and longer-term inflation expectations remain contained."

For the complete text of the Fed's latest press release please click here.

Has Monetary Policy Been More Accommodative Than Previously Believed? from the Federal Reserve Bank of St. Louis is available here.

Targeting versus Instrument Rules for Monetary Policy from the Federal Reserve Bank of St. Louis can be found here.

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