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Economy in Brief

Fed Funds Rate Increased to 4.50%
by Tom Moeller January 31, 2006

At today's meeting of the Federal Open Market Committee, the target interest rate for Federal funds was raised 25 basis points to 4.50%, the fourteenth increase since June of 2004. The unanimous decision was widely expected by analysts. The discount rate also was raised 25 basis points to 5.50%.

The economy's slowdown in 4Q05 was noted in the Fed's statement. "Although recent economic data have been uneven, the expansion in economic activity appears solid."

This latest action, therefore, had a preemptive sense to it. The FOMC's press release stated "Core inflation has stayed relatively low in recent months and longer-term inflation expectations remain contained. Nevertheless, possible increases in resource utilization as well as elevated energy prices have the potential to add to inflation pressures."

The latest statement's verbiage regarding the likelihood of future rate action was toned down slightly from "is likely to be needed" in the prior statement to "may be needed to keep the risks to the attainment of both sustainable economic growth and price stability roughly in balance."

Today's meeting was Chairman Alan Greenspan's last since taking over the Chairmanship in 1987.

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

The Fed's Monetary Policy Rule from William Poole, President of the Federal Reserve Bank of St. Louis, can be found here.

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