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Economy in Brief

Fed Funds Rate Increased to 5.25%
by Tom Moeller June 29, 2006

The Federal Open Market Committee raised the target interest rate for Federal funds 25 basis points to 5.25% at today's meeting. This seventeenth 25 basis point increase since June of 2004 was the result of a unanimous decision.

The discount rate also was raised 25 basis points to 6.25%.

The action was widely expected by analysts though market disappointment that rates weren't increased 50 basis points may be evident in yesterday's rise in gold prices.

The Fed's rationale for a 25 basis point increase was that "Recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year ..." and that "inflation expectations remain contained."

Ever vigilant for building inflationary pressure, the Fed statement succinctly stated that "the Committee judges that some inflation risks remain."

For the complete text of the Fed's latest press release please follow this link.

Market anticipation of recent Fed action is reflected in the decline, since early May, in gold futures prices and the so called "TIPS spread."

Reading the Minds of Investors: An Empirical Term Structure Model for Policy Analysis from the Federal Reserve Board is available here.

Reflections on the Yield Curve and Monetary Policy is Chairman Ben S. Bernanke's March speech and it can be found here.

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